To be sure, late spring and the summer to date, has certainly been interesting. Like multiple fingers running into a larger body of water, there are many significant things on the financial horizon that will no doubt shake and potentially seize the markets. Regardless, the reaction by the economic central planners will be the same – more monetary easing and stimulus to solve all.
As The Financial Panner has been writing for some time, this reaction to continually paper over our economic problems, will simply push up the price of commodities – namely gold and silver – while increasing the cost of living. Get ready for some pain.
Quantitative Easing 2 formally ended on June 30, 2011 (whether it really did is of course another question). This expectation certainly got its due media blitz and the general message was that the economy was back on track. It can be speculated that the anticipated end of QE2 had some role to play in the temporary sell off in precious metals. An example of this would be that most people wrote off the recent exponential silver rise and fall as simply a “bubble”. Ironically not even a few weeks after the termination of QE2, recent economic indicators – specifically unemployment – have been horrendous, and the tide has quickly turned.
The key to profits in any bull market is to avoid the noise and focus on the fundamentals – being confident that they will shine through with time. From our April 2011 newsletter regarding the tragic events in Japan we stated:
Finally, the overall financial impact of all of this could be dramatic on world financial markets which we believe would result in “All Systems Go” for Quantitative Easing 3.
While we certainly see this as more of an easy cover reason or excuse, this prediction seems to be coming to fruition in a very measurable way. From Federal Reserve minutes in late June released July 12, 2011:
Some participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated, it would be appropriate to provide additional monetary policy accommodation.
…a few members noted that, depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run.
This certainly lays a clear foundation for QE3 – look for this to be officially announced and possibly implemented by late Fall 2011.
The Financial Panner believes that the Federal Reserve actually desires gold and silver to rise as a way to indirectly devalue the US Dollar. One caveat to this point is that the Fed wants this to happen as a slow and managed process – no launching to the moon if possible. The reason this is important is that one of the other key financial items on the horizon – the debt ceiling – may be used as a tool to temporarily change market mindset, much like the ending of QE2 did. Time is running out to make a deal on the debt ceiling and the useless politicians, as usual, can’t seem to get much done. Rest assured if they do get anything done, it will most likely not be positive. While some may consider this unoptimistic – we simply judge them on their historical track record, and when it comes to the finances of the US government, well – need we say more?
As The Financial Panner has stated numerous times, there is no way out of the financial mess which first exposed itself in 2008 without more money creation by the Federal Reserve. The recent minutes by the Fed and the subsequent market reaction seem to strongly validate that fact. We have a strong and disturbing feeling that we may be approaching a turning point shortly where major changes to the economic landscape are around the corner.
Finally – please enjoy the latest Ron Paul V Ben Bernanke video which is taken from today’s House Financial Services Committee hearing. Ron Paul truly represents the vision and fundamentals of the founders of our great country.