Fed Shocks; Marc Faber could be Right on Gold Price

Expectations for a David Rosenberg surprise scenario playing out at the conclusion of the FOMC meeting shattered into a heap of broken crystal balls, yesterday.  Every asset class not nailed down, save long-term Treasuries, were piled high in the demolition, too.

Not only did the Fed tell the markets more bags of tokens in the Max Keiser ‘Casino Gulag’ economy won’t be handed out after all, the 12-member cabal of interest-rate-price-fixers handicapped the U.S. economy to a downgrade of a less than show—and by the pancaking nature on the yield curve envisioned by the Fed through ‘Operation Twist,’ financials are looking worse than ever today, too.  Will CNBC have Dick Bove back on to defend BofA again?  He’s got a lotta splainin’ to do.

And, as if in a coordinated attack to assure another September event, Warren Buffett’s Moody’s downgraded Warren Buffett’s BofA (NYSE: BAC) and Wells Fargo (NYSE: WFC).  Surely, someone on zerohedge.com will take on the task of explaining that one to the fans.

Moving on to gold.

Those expecting a shock and awe from Bernanke and the Feds, well, certainly got it yesterday, which brings up Marc Faber’s loose call for the gold price to retreat in the coming weeks.  As improbably as it may have appeared on Tuesday, Faber could turn out to be right this time on the short-term direction for the precious metal.

If you’ve been keeping track of the divergent calls for the future gold price for the months of September and October between Goldmoney’s James Turk and Gloom Boom Doom Report’s Marc Faber, Faber had been looking for a pullback in the yellow metal to the $1,500-$1,600 range (approximately the 12-month moving average) before considering making a buy recommendation.  On the other hand, Turk sees an assault on the $2,000 mark by the end of October amid the crisis in Europe signaling an imminent major event of announcement out of the Troika about Greece—or worse, from the bond vigilantes in the Italian, Spanish and Belgium markets.

Though Halloween is still far off, in overnight trading in Europe, gold and silver have cratered to $1,736 and $37.29, respectively—as of 13:23 London time.  So it appears that out of the gates, Faber has taken the lead here.  But given the explosive moves these metals can muster, at anytime, Turk could still ultimately win again on his contrarian call in the face the headwinds of October’s bad seasonals to match gold’s ‘extremely overbought’ technicals.

But for those ready to throw in the towel for Turk, he, too, has shocked the fans with his seemingly call for an implausible huge rally in gold during the seasonally low summer months.  He turned out to be on the money.

Following the demolition work ordered through the Eccles Building in Washington, yesterday, Turk refused to back off on his prediction for gold $2,000, and told King World News, “While we may move sideways [ in the gold price] for a few more days until everybody reads the writing on the wall, I think we should be preparing for much higher prices. So I am sticking to my $2,000 target before the end of October.”

Mr. Big dumps Bank of America

After making headlines last year for his brilliance in foreseeing a rebound in bank stocks following the March 2009 stock market crash, hedge fund manager John Paulson has made headlines again, but not for his record fee take down, but for his recent timing blunder from his substantial sale of his fund’s stake in Bank of America (NYSE: BAC).

According to a CNBC news report, the $38 billion Paulson & Co. founder sold shares in BAC through to the announcement made by the bank that it had settled for $8.5 billion with angry investors who bought misrepresented mortgage-backed securities related to the bank’s Countrywide subsidiary.

CNBC’s Kate Kelly reported Thursday that Paulson had sold a “substantial portion” of his stake in BAC in April and May, citing persons close to the transactions.  According to SEC form 13-F, Paulson & Co. held 123.6 million shares of BAC with a market value of $1.65 billion.

Paulson’s dumping of BAC during the second quarter comes off the heals of his fund’s liquidation of 80,000 shares of Citigroup (NYSE: C) and 2 million shares of CIT Group (NYSE: CIT) during the first quarter, which strongly suggests that he has become less optimistic about the future of the banking industry, maybe even less sanguine on the outlook for the U.S. economy—as the banking sector traditionally leads out of economic recession.

However, Paulson’s positions within the banking sector, specifically in BAC, have taken a backseat to the rest of the story behind the man who charged his investors $5 billion in fees last year for his stellar market performance.

Paulson’s “brilliance” last year may have been a fluke (or the result of collusion with Goldman Sachs on some MBS deals), speculate analysts.

In the case of BAC, since the beginning of 2011, shares of BAC have dropped approximately 20%, leaving Paulson & Co. investors with an estimated $200 million – $300 million haircut to the funds NAV.  And now, CNBC reported that its sources told the financial news outlet that Paulson may be considering buying BAC back, now that the bank has decided to settle the Countrywide MBS class action suit.

Following BAC’s late-afternoon announcement on Wednesday, shares of BAC soared 3% to more than $11.  Some stock technicians suggest that Paulson was fell for an amateur-like whipsaw.

His recent substantial loss in BAC follows another large loss, an embarrassing one, on Sino-Forest (TRE.TO), a Chinese tree plantation.  After research firm Muddy Waters released a report in early June that asserted Sino-Forest overstated its timber holdings, shares of TRE plunged 71% on the Toronto Stock Exchange (TSX).

For the year, TRE has dropped 85%.  Paulson & Co. took a $750 million loss on TRE in June, according to the Wall Street Journal.

Overall, in stark contrast to last year, 2011 has so far been a tough year for Paulson & Co.  Through June 10, Paulson’s flagship Advantage Fund Plus has shed approximately 20% off its NAV, according to two WSJ sources.

Jim Rogers’ Top Two Commodities

In an after-the-bell interview with CNBC’s Maria Bartiromo, Wednesday, commodities king Jim Rogers said he’s a bull on all commodities now, but especially likes silver and rice.

The 68-year-old Rogers, known for his partnership with George Soros at Quantum Fund, spelled out what he expects of Ben Bernanke and other central bankers as the financial crisis plays out—that is: print money.

Strong demand from Asia’s growing middle class from a pool of a 3-billion-plus population as well as an anticipated continuation of loose monetary policies by central banks worldwide will lift commodities prices, he said.

“It [print money] is all they know to do in Washington, Tokyo and a few places,” said Rogers.  “They’ll print more money.  And if they print money, you should own silver and rice and real assets.”

If the world economy grows, Rogers likes commodities.  If the world economy goes back into recession, Rogers likes commodities.  It’s a heads you win, tails you win play, he explained.

What happens after QE2 expires at the end of June?  Rogers didn’t venture a guess on the effects on the equities markets as the end of June approaches, but he expects more money printing from the Fed, especially in front of an election year.

“QE2 definitely will go away.  Now it may come back with a different name,” he speculated.  “They may call it cupcakes.  Who knows what they’ll call it, if it comes back.  But they’re going to bring it back, because he’ll be terrified and Washington will be terrified.  There’s an election coming up in 2012.  Washington’s going to print more money.”

On the subject of the debt ceiling impasse in Washington, Rogers doesn’t expect a U.S. government shutdown.  But if the U.S. government didn’t raise the debt ceiling, he surmises that “the dollar would go up,” he quipped.

But a shutdown of the U.S. government won’t happen, he said.  Governments throughout history have all opted to try to inflate out of burdensome debt levels, and this time the response by today’s governments won’t play out any differently, Rogers has repeated stated in the past.

But at some point, the currency crisis comes, and we may be coming close to that tipping point.  “The markets won’t put up with this much longer,” said Rogers.

The billionaire investor’s portfolio is long some currencies (likes the Chinese renminbi) and commodities.  He has no long positions in the U.S., and is short emerging markets and U.S. technology stocks—with the latter, he believes, are in the midst of a bubble, mentioning Facebook (presumably referring to valuation estimates of the social network leader) in particular.

Rogers is also short a U.S. bank stock, but refused to state the name of the bank on two separate occasions during the Bartiromo interview.  Since Rogers initially mentioned more than a month ago that he’s short a U.S. bank, rumors have spread throughout the Web that the bank in question is Bank America (NYSE: BAC).