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EmailThe Coming Rout
Tuesday, March 8, 2011
Executive Summary
- Further evidence that a Fed quantitative easing stoppage in June is likely
- Implications such a stoppage will have on stocks, commodities, bonds, and precious metals
- Why this will be more damaging to the economy than the 2008 correction
- Will the Fed eventually resume quantitative easing?
- Three alternatives to watch for that could prevent the coming rout
- How to hedge against the predicted rout
Part I: Why Things Are About To Get Turned Upside Down
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Coming Rout
There are a few things that make the prospect of a Fed quantitative easing (QE) stoppage more likely.
The Fed Notices Inflation
Using a flashlight, a map, and both hands, the Fed managed to find something:
Fed Finds Climbing Costs Hit Shoppers
March 3, 2011
Many manufacturers are passing along higher input costs to their customers, a sign that rising prices for wheat, cotton, iron, and other commodities could increasingly reach consumers in coming months, according to the Federal Reserve's beige book survey.
The report, a summary of economic conditions across the central bank's 12 regional districts, said manufacturers "in a number of districts reported having greater ability" to pass through higher costs. "Retailers in some districts mentioned they had implemented price increases or were anticipating such action in the next few months," the Fed said.
It's good to see that the Fed is at least dimly aware that price inflation is in the pipe and coming soon to a market near you. The rest of the world has had no such difficulties in detecting inflation, especially on news like this:
Your faithful information scout,
Chris Martenson
Copyright 2011, Chris Martenson. All rights reserved.
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Comments
Would postponing planned silver investments until after June be a reasonable investment strategy? And then buy, buy, buy?
I'm curious to see if this will be one of the Fed's say one thing and do the opposite moves. If they are getting pressure from Saudi Arabia, China, etc to reduce inflation then maybe this is just a stall tactic until they fire off QE3.
Yeah, I'd say I'm nervous. A 20% rout would wipe out this year's gains for me. Although being mainly in physical metals right now, I don't feel like a sitting duck as I would if I were still mainly in equities like the old days. Still I remember a tip that Mish gave in his CM article...
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Chris,
This is exactly inline with my thinking and strategy. I think deflation is going to win out in a massive debt and derivative default. We continue to see the signs of this in bank lending, consumer debt, mortgage debt, etc...
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I do not have any plans to profit from the potential downturn. I will continue to buy physical gold and silver, all the way into the downturn, if thats what happens. So far I have enough margin to weather a 50% reduction in value of my physical holdings...
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I consider myself warned. Thanks Chris.
Buying puts on silver as insurance seems prudent but it is not clear to me upon reading this very good piece whether CM is suggesting one should do it now or only if/when silver approaches the $30 level.
Buying deeply out of the money puts will be much cheaper now than when silver is down 10-20% but the time decay issue arises...
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Don't forget that March is bonus season for the financial services industry, which will add $150+ billion onto the pile. I'm sure some of that will find its way into gold and silver (physical of course) because I really don't think the three E's are unknown to the industry...
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I doubt a Treasury auction can be successfully concluded without the printing press. And I'm confident the U.S. "Safe Haven" status is threadbare at best. It is difficult for me to believe the Fed actually has the option of ending Q...
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Great report, thanks for the information.
At this point I think my April moves will be:
1. Move investment accounts to a cash position. Divest and wait to buy up commodity ETFs at or close to the bottom.
2. Keep 50% of my funds in cash in case I'm wrong or someone starts mumbling about "reallocation" of retirement funds or the banking system starts to fail...
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