Bullion expert Jim Sinclair has no doubt that Bernanke and Fed will come in with QE3. Languishing stocks, downgrading GDP projections, and record wide credit spreads in Europe evolved from investor expectations that the ECB and the Fed are done printing money, said Sinclair.
The former adviser to the billionaire Hunt brothers of Texas said the Fed has no choice but to embark on QE3, or whatever it will be called when an announcement is finally made. In the meantime, investors taking the Fed at its word could find themselves in a whipsaw trade.
“You’ve got to continue what you’ve been doing,” warned Sinclair. “The slightest indication that you wouldn’t continue has brought this crisis on. But you see QE is the kind of thing that puts some sort of balm on the sore of fear. Whether they call it QE or not, it’s coming back on in spades.”
As the Fed’s so-called QE2 comes to an end on June 30, investors have voted no confidence in Bernanke’s plan to end the easy money policies instituted in April 2009. After peaking at a high of 12,876 on May 2, the Dow shed nearly 1,000 points in anticipation of a shut down of cash flowing through its 18-primary dealer network.
Beyond the monetary realities confronting the Fed, Sinclair is betting that the presidential election cycle adds to his conviction of a Fed reflation announcement this summer. The bond king, Bill Gross of PIMCO, agrees, and suggested on his Twitter account that Bernanke is likely to plant a hint of a QE3 plan in August during the Fed’s annual symposium in Jackson Hole, Wyoming.
“Next Jackson Hole in August will likely hint at QE3/interest rate caps,” Gross tweeted.
The timing of an announcement (or hint) in August would line up nicely to a September kickoff to the 2012 presidential race. And after a CNN poll released Jun. 8, indicating that the electorate is losing confidence in the Obama recovery, a nervous White House will sure be pressuring the Fed to do something to keep the house of cards up a little longer.
“CNN Poll: Obama approval rating drops as fears of depression rise”
“President Barack Obama’s overall approval rating has dropped below 50% as a growing number of Americans worry that the U.S. is likely to slip into another Great Depression within the next 12 months,” according to CNN.
Confidence in the nation’s leaders to solve the financial crisis is paramount to the Fed’s goal of debasing the U.S. dollar in an orderly manner. Without the confidence that the Fed will continue supporting asset prices (stocks), the economy and the dollar move into what George Soros calls the “Act II” of the global financial crisis. No official (either governmental or quasi-governmental) wants to end up at the helm when the system collapses.
“If people lose confidence, it isn’t the country that suffers, it’s the currency of the country that suffers,” Sinclair explains. “This whole thing is put together with mirrors, smoke and spit. You can’t afford to have any kind of financial crisis or all of the old wounds will open up and hemorrhage because of the investment that’s already been made, you’re stuck in a bad investment, the dollar. All currencies are going into oblivion and that’s why they (investors) are buying gold.”
With the crisis in Europe and the looming problems in the United States coming to a head all over again, Sinclair told Eric King of King World News earlier in the week, “You’re out of your mind if you sell gold assets now.”