Expect Surprise Global QE3 to Shock Markets

By Dominique de Kevelioc de Bailleul

No hints from the Fed about QE3 is the latest ‘bad’ news coming out of  Bernanke’s testimony to Congress this week.  Gold sells off.

But Mike Krieger, a regularly featured contributor to zerohedge.com, stated he senses the Fed’s preparatory language to markets before formally announcing policy changes is now null and void.

“I have no idea why anyone is making a big deal about The Bernank’s testimony to Congress today,” Krieger began his article.  “There was no way he was going to come out with anything meaningful. . . In fact, I am 100% certain that The Bernank merely wants to toe the line as carefully as possible and at the same time get some nice propaganda out there to the sheeple.”

Krieger goes on to state he expects “a massive wave of liquidity” from the Fed, but doesn’t expect the U.S. central bank to pull the trigger at the conclusion of the next meeting scheduled later this month, though many analysts believe making a formal announcement during the summer months before the fall election will camouflage enough the Fed’s role in aiding incumbent parties with easy money as a way to boost asset prices and mood of the electorate going into November.

In short, Krieger believes Washington no longer cares about its once-clandestine strong-arm tactics becoming exposed to the world; the Washington ‘elite’ “don’t care” anymore, according to him.

“Maybe in times past [Washington 'elites' cared], when the power structure was a bit more reserved and less blatant about their corruption and manipulations,” Krieger continued.  “They don’t hide that stuff anymore.  The “elites” in America today are simply gangsters.  We have already been officially christened as a Banana Republic.”

No banker has been prosecuted for malfeasance since the crisis began approximately four years ago, lending much credence to Krieger’s seemingly outrageous but arguably correct summation.

So, with that pretension with the American people and the larger global community out of the way, market manipulation through every means possible, including an obvious connection between the Fed and election year politics dispensed with (and consistent with more troubling trends in America, such as the blatant suspension of the Constitution and blatant disregard for law and order among those in power), the Fed can do what it wants and when it wants to do it.

In this case, a last minute surprise QE announcement from the Fed to shock markets back into stock market rally mode must drive as much capital out of banks and mattresses as possible to condition the investor public that money must be ‘put to work’ and that shorting the market will be punished.  And there is some evidence of the ploy working, according to the Wall street Journal.

“As late as the early 1980s, Fed officials had always believed that the less that the public knew about what the Fed was trying to do, the better,” Greg Robb of the WSJ wrote in an article of Apr. 4, 2011.  “Surprise announcements were considered the most effective tool of monetary policy.”

Krieger writes, “ . . . if the market heads into the Fed meeting at current levels it runs the risk of being disappointed.  If this is combined with continued economic weakness then the real set up happens between the June meeting and the August one.  It is in that interim period that the market could throw another one of its hissy fits and beg for more liquidity.” [emphasis added by zerohedge.com or Mike Krieger]

Marc Faber of the Gloom Boom Doom Report agreed.

“I think the market will have difficulties to move up strongly unless we have a massive QE3,” Faber told Bloomberg’s Betty Lui, May 14.  “If it moves and makes a high above 1,422, the second half of the year could witness a crash, like in 1987.”

Though gold dropped approximately $40, Thursday, the fall in price may have given accumulators of the yellow metal better prices on the way to record highs.  The markets await the Fed to finally pull the trigger on more easing.  The emergency meeting of the G-7 may have been the meeting in which other central bankers will jump on board with the Fed in a shock-and-awe global easing spectacle—which has been a prediction made by several gold market analysts and as far back as the couple of years from the onset of the crisis.

Peter Schiff’s Latest Comments About Gold and Gold Stocks

With the dismal performance of gold stocks testing the patience of even hardcore gold bugs, Euro Pacific Capital CEO Peter Schiff believes investors should not panic and sell, but hold on, the bottom in the gold mining stocks is probably in.

And if the bottom is not in, hold on anyway.

“We could see another 10% pop in a week or two in the mining shares,” Schiff told King World News on May 23.  “There’s a very good chance that the bottom is in, especially if we can get a rally in gold.”

At this time, it may be worth repeating a famous quote from economist John Maynard Keynes: “The market can stay irrational longer than you can stay solvent.”  On the way up and on the way down, markets can mis-price assets to ridiculous levels for longer periods of time than appears rational.  Today, it’s the U.S. dollar, U.S. Treasury market and gold, which have been mis-priced for so long.

“Right now the U.S. dollar has been rising because of worries about Europe, but the dollar is sicker than the euro,” Schiff said.  “So both currencies should be falling against gold and gold should be taking off here.”

To put into better context how “sick” the U.S. dollar really is, consider an article penned by USA Today journalist Dennis Cauchon, who outlined in his May 23rd piece the horrific fiscal shortfalls in Washington—a fiscal debacle so large that economist John Williams of ShadowStats.com expects hyperinflation in America some time in 2014 as global investors might eventually witness 100 percent Fed monetization of fresh U.S. Treasury debt.

Under the Generally Accepted Accounting Principles (GAAP) rules of reporting financial disclosures, “the [U.S. budget] deficit was $5 trillion last year under those rules,” stated Cauchon.  “The official number was $1.3 trillion. Liabilities for Social Security, Medicare and other retirement programs rose by $3.7 trillion in 2011, according to government actuaries, but the amount was not registered on the government’s books.”

Whether investors are aware of the fraudulent U.S. Office of Management and Budget (OMB) accounting, or not, the reality of millions of baby boomers retiring each year and the growing budget deficits that come with an aging population will reach an inflection point, whereby investors of all stripes come to expect money printing as a way of life and begin trotting, then running, to gold and the gold shares in an effort to protect from a Greece-like financial collapse.

And the quick-fix to Washington deficits through Fed ‘stimulus’ and the higher tax receipts that result from a U.S. “bubble economy” has finally reached that ‘Minsky Moment’, according to Schiff.  After trillions of dollars of Fed stimulus since 2009, the economy just isn’t responding like it had for nearly 70 years of Fed intervention—a prediction made by 20th century economists Hyman Minsky and Ludwig von Mises, among others, of the ramifications of chronic central bank money supply injections.

“The market is just rolling over, as it’s coming to grips with the fact that the fantasy they believed in is just that: fantasy,” Schiff said in an earlier KWN interview of May 18th, referring to the recently reported poor economic numbers from Washington and private sources.  “It’s not reality.”

Schiff went on to say that gold—and by extension gold shares—will rise “as investors realize that QE3 [quantitative easing] is coming, because the Fed has already said that.  If the economy needs it, it’s going to get it.  And the economy is addicted to it [stimulus].  I mean, this economy needs QE like a heroin addict needs another fix.”

Back to the May 23rd interview:  Schiff suggested that the relative strength of the HUI index of mining shares to the gold price so far this week indicates to him a bottom is in and a buying opportunity is at hand.   As far as the gold mining shares, “we could have a pretty serious up-move in the gold stocks in a very short period of time.”

Gold Alert: “This has happened only 5 times in the last 100 years”

Investors seeking an entry point to add to gold (and silver) positions or to initiate positions—as a strategy to balance portfolios to the risks of the coming turbulent re-balancing of the global monetary system—should consider a macro indicator that has served money managers and gold investors well for the past century.  And right now that indicator tells us gold is cheap.

In an interview with Goldmoney Chairman James Turk, money manager Adam Fleming of Fleming Family & Partners suggested that, when gold shares stray too far in price from the price of bullion, gold becomes remarkably cheap on a relative basis—or, a buy—a buying opportunity that emerges once per generation, on average.

“I think it’s very likely that we have [reached a bottom in the gold price],” Fleming told Turk.  He believes the experiment in fiat currencies not connected with precious metals of the past 30 years is becoming “unwound.”

“The reason why I believe gold is bottoming here, is because the gold shares are trading at two standard deviations to the gold price, and this has happened only five times in the last hundred years,” Fleming continued.

“In the crash of 2008, in 2000, 1980, in . . . way back in 1950s and in the 30s, he added.  “So I think we’re at an extraordinary inflection point with both gold and gold shares, providing really unusual opportunities.”

Leonard Melman of the Melman Report agrees with Fleming and provides a context in which investors can measure the magnitude of the extreme disconnect between the prices of gold and the gold shares at this time.

“In mid-2008, gold was about $900/oz and the Philadelphia Gold and Silver Stock Index (XAU) was 205,” Melman told The Gold Report. “Now with gold just under $1,600/oz, the XAU is 147. So, while gold has almost doubled, the major mining shares have dropped by an average of about 40%, and many of the junior shares have fallen by more.”

Fleming’s observation of this recent phenomenon comes off the heels of comments made within a week by three other market pros, Euro Pacific Capital President Peter Schiff, Founder and Managing Partner of Matterhorn Asset Management AG & GoldSwitzerland Egon von Greyerz and Hinde Capital CEO Ben Davies—all of whom believe the selling in the precious metals market is overdone and opportunities to enter the market have materialized dramatically during the nine-month price consolidation of the bullion price.

“Gold is oversold,” Euro Pacific’s Schiff told King World News (KWN) on May 17.  “ . . . as the market digests the weakening economy and the lower market, then you start to get the optimism for the release, the fix, which is QE3. So I think QE3 puts a floor (somewhere) beneath the market.”

The next day, Hinde’s Davies reported a “big seller” had dumped a lot of gold, overwhelming strong demand.  But the big seller has stopped liquidating, according to Davies in his interview with KWN on May 18, and he expects a rally in the gold price from the lows of last week, as well.

“The sell-off in gold is reminiscent of the 2008 deleveraging process, but it is more similar in dynamics to 2012 when a notable fund manager had to sell his gold/ ETF holdings,” said Davies.  “There were buyers of course, seller and buyer volumes must match.  But the need to sell overwhelmed the need to buy.

“Gold buyers picked up some bargains then, and they will now. . . I particularly would like to be long gold now.”

On May 22, Matterhorn’s von Greyerz told KWN the physical market is extremely tight—so tight, in fact, that one of his clients discovered that the Swiss bank, with whom he entrusted his ‘allocated’ gold account, scrambled to find bullion in a manner reminiscent of the MF Global scandal to satisfy the client’s request for shipment of his gold to another location.  “It’s absolutely amazing” what has happened, said von Greyerz.

And von Greyerz, too, sees gold soaring from the oversold lows of last week.

“I think we did make a low last week [in the gold price], and I think we are now going to see the rebound,” von Greyerz told KWN.  “And once we get started—and that may take a few days—but I think we can see fast moves here.  I feel pretty confident that we have seen the end of the correction and the next move up will be a big move. There’s no question about it. . . All the dominoes are down ready for gold to take off.”

Market Meltdown Nears; Fed Soon May Be Forced to Announce QE3

The financial indicator that traders have watched most for a sign of another Lehman-like swan dive in stocks has suddenly inched to the edge of the abyss in overnight trading.

That indicator is the U.S. 10-year Treasury—the instrument of choice among hedge fund mangers when stocks become vulnerable to that big drop—that long-awaited second shoe thud of the global financial crisis.

Greek bonds, again, are swan-diving, driving rates north of 20 percent, and Spanish CDS spreads with German paper reached a record 526 basis points in European trading, according to zerohedge.com.

A crash through important support at 1.8 percent on the 10-year note will most likely give the green light to traders to panic out of stocks and to rush into the next leg of the ride to the very top of the 30-year bond market bull market—which now has reached bubble territory.  Gold will most likely sell off, as banks shore-up capital reserves and hedge funds make client redemptions during an equity market sell off.

“If we see the yield on the U.S. 10-Year Note break below the 1.8 percent level, what it’s to signal to bond traders around the world is that we have a deflationary wave coming,” trader Dan Norcini of JSMineset.com told King World News, Friday.

As far back as September 2011, 1.8 percent has been the rate at which traders have sold bonds and bought back stocks in anticipation of a ‘Bernanke put’, the widely-held belief that the Fed will come to the rescue of the markets in one way or another to prevent another first-quarter 2009 market crash, which took the S&P500 down to 666 in a harrowing scare reminiscent of the Crash of 1987.

After calling the March 2009 market bottom—to the day—two years later, in March 2011, Marc Faber, the editor of the Gloom Boom Doom Report, told CNBC’s Joe Kernen that the Fed won’t allow stocks (the only asset class it can ‘manage’) to tumble.  The Fed will intervene, according to the Swiss-born economist and money manager who now lives in Chiang Mai, Thailand.

“We are in a mild recovery; markets are a discounting mechanism,” Faber explained in the March 2011 interview with CNBC.  “And we have already doubled in the S&P from the low.  So on the improvement, maybe the market sells off.”

Kernen asked, “You figure QE2 . . . they’ll pretend that they’re going to end in June, but then eventually they’re forced to start it up again. . . . QE8?”

“I made a mistake; I meant to say, QE18,” Faber quipped.

“So it will be here in 2012, as well, and maybe in 2013?” Kernan asked.

“For sure. For sure,” Faber maintained. “Until very recently, the Fed has had very few critics. . . Over the past few months a lot of critical comments have come up about the Fed and its money printing habits. But I bet you, the S&P drops 20 percent, all the critics will be silenced, and they will applaud new money printing.”

Back to Norcini:  JSMineSet’s Norcini agrees with Faber’s assessment.  The bond market is telling investors the stock market is vulnerable to a big decline as the S&P approaches the 1,325 level—a level that Charles Nenner of Nenner Research suggested on Financial SenseNewshour is the target for either a rebound in stocks or a further slide into a dangerous negative feedback loop of selling below 1,325.

“I think the reason the 1.8% level has been a floor so far is because most traders are convinced the Bernanke-led Fed will not allow deflation to occur,” Norcini continued.

If 10-year note rates decisively break below 1.8 percent, the next stop might be as low as 1.15 percent, according to Portola Group Founder Robert Fitzwilson, who said in aninterview with KWN two days earlier of the Norcini interview, that a drop in the 10-year to 1.15 percent can only mean a market meltdown of an unprecedented proportion.

“The Fed can’t let this happen,” Norcini continued, citing Fitzwilson earlier comments about the 10-year Treasury. “What alternative do they have?  I’m not a fan of central banking, but what are they going to do?  Do they just let this deflationary tsunami engulf the planet?  This is the Great Depression II that Bernanke fears and he will not let this happen.

“The bottom line is Bernanke may not want to do another round of QE, due to the political implications, but the market may force his hand if stocks and interest rates really begin to plummet.”

As of Monday, the U.S. 10-year Treasury trades at 1.77 percent, six basis points from its all-time low yield of 1.71 percent set on Sept. 22, 2011.

Peter Schiff’s Outlook for Gold & More QE

Speaking with Eric King of King World News yesterday, Euro Pacific Capital CEO Peter Schiff suggested that central bankers and policymakers remain resolute in keeping the financial system from collapsing by printing more money.  Contrary to the growing chorus of lemmings paraded on CNBC who chant the Fed is “out of bullets,” Schiff insists that the group-think conclusion drawn among analysts is utter nonsense.

“The Fed is not out of bullets in the sense that it is not out of ink, they can keep printing,” Schiff told KWN.  “They can’t lower interest rates, but they can print more money and buy more stuff.  That’s what the Fed is going to do, it’s not going to help the economy, but it’s going to help the price of gold.”

Unlike the deflationists, who claim that irrespective of monetary policy, all asset classes except best-quality sovereign debt (cash) preserve wealth during periods of debt destruction, Schiff’s street-smarts as well as his firm grasp of economic history lead him to advise his clients against holding cash. Instead, Schiff tells his clients to hold precious metals during times of debt destruction and to ignore the media-driven propaganda leveled against investing in gold and silver.

On France’s 222nd anniversary of the storming of the Bastille (La Fete Nationale), July 14, Schiff, in an essay, exposed Fed Chairman Bernanke for his incorrectly drawn conclusion (self-serving, maybe) for the reason behind the relentless highs reached in the gold price throughout the past decade.  Bernanke told Congress gold’s inexplicable rise was probably due to investors hedging “tail risks.”

“If it were true that people bought gold to protect themselves from market uncertainty, as the chairman claims, then the metal should have spiked in the midst of the ’08 credit crunch,” Schiff explained in his July 14 piece.  “Instead, it fell along with most other assets.”

And, since the 2008 crash (in all asset prices, except U.S. Treasuries) and two QEs from the Fed in response to the meltdown, spot gold nearly trebled in price to $1,930 in September of 2011 from its October-2008 crash-low of $680.

A more complete picture of the crash aftermath can be gleaned on a relative basis between hard money and paper assets.  In purchasing power of gold against the dollar (Schiff’s point all along), it took 12 ounces of gold to buy one share of the DJIA in October-2008; today, the Dow can be purchased for 6.78 ounces—a 77% increase in purchasing power in dollar terms in three years—and that purchasing power muscle includes the steep decline from the September high of $1,930 in the gold price to today’s 13.5% discounted price of $1,670.

Just as the global markets in 2008 rushed from one side of the boat to the other in another convulsing liquidity crunch, the history of knee-jerk reactions back into the dollar repeats.

Schiff stated in his July piece, “[In 2008] people instinctively fled into U.S. dollars and Treasuries because of their long record of stability. What Bernanke doesn’t understand is that his irresponsible monetary policy is undermining that faith in U.S. assets, built up over generations. That is what’s driving gold: easy money, negative interest rates, and quantitative easing.”

Schiff agrees with famed commodities investor Jim Rogers on that point.  Both agree the Fed will continue debasing the U.S. dollar (the underlying catalyst for the bull market in gold), but in the meantime liquidity concerns outweigh that strong underlying fundamental of the gold market.

Rogers said in an Oct. 4 interview with Russia Today, “The standard reaction is in times of confusion is to run to the U.S. dollar.  It’s the wrong thing to do in my view, but I know they’re all going to do it, so I’ve done it [before the run].”

So what does Schiff (and Rogers) think, today, is in store for the dollar and gold market?

“QE3 is coming, if it is not here already,” Schiff told KWN yesterday.  Rogers echoed Schiff’s observation (conclusion) in the October 4 interview with RT.

“Gold prices are going a lot higher,” Schiff said.  “There is a lot of upside left in the gold market and I think we are years and years away from making a top [as a result of QE3 and subsequent QEs].”

Schiff continued, “We’ve had a large selloff and so it would be a big move for gold to make new highs and get above $2,000 before the end of this calender year, but it’s certainly not impossible.  If it doesn’t happen in 2011, it will happen in 2012, we could end up a lot higher.”

Is the QE Train finally Coming?

Suddenly, the talk of the threat of deflation has coincidentally been put forward as a deep concern at the Fed.  And the suggested remedy is, you guessed it, more quantitative easing.  Ben has come to save us.

“It is something that we’re going to be watching very carefully,” Fed Chairman Ben Bernanke said in response to a question during a Q&A at forum sponsored by the Cleveland Fed.

“If inflation falls too low or inflation expectations fall too low, that would be something we have to respond to because we do not want deflation,” Bernanke said.

Like a corrupt dictator with ambitions of painting a perfect world for his nation, Bernanke has come to protect us from that lurking nemesis of state—deflation!

My, my, my … so soon after the FOMC meeting?  Even after the markets were so hopeful of a Fed save, built up to a crescendo of excitement following the newsflash that a last-minute change in schedule, away from the normal 1-day FOMC meeting to an extended 2-day one was, instead, needed?   Surely something big was afoot!

Bernanke surely needed that extra day to convince those three sticks-in-the-mud at the FOMC (as well as those disloyal Republicans so concerned about inflation) that inflation was less important than job growth, and that only he was destined to regain the glory of the 50-states by simultaneously averting a Wiemar style collapse of the dollar and a crushing Japanese-style lost double decade with his books in hand.

Well, Bernanke showed them all why he was destined to seize control of the hearts and minds of a fearful public plagued by a falling empire, didn’t he?  He was so prescient when he said commodities prices were “temporarily elevated” by “transitory factors” and demonstrated single-handed why those three dissenters at the Fed are, in fact, enemies to the state.

It’s as if Bernanke was awarded divine understanding of what truly ails the great red, white and blue: it’s those evil speculators in the commodities pits who’ve got to be dealt with.

As in a 1933 Reichstag-like event, The Bernanke, as he is affectionately called, now, made sure commodities traders got their just due for their crimes—through a coordinated maneuver with its allies at the SNB to crush the Swiss franc at the precise moment the gold price was about to breakout to fresh all-time highs.

In an out-of-the-blue sale of a massive 4,000-gold futures position (naked short?) for December delivery which coincided with the SNB announcement, instead of the gold price soaring to $2,000, it was burned to the ground along with the franc.

And to permanently rid the state of those evil freegold speculators who misguidedly sought to flee the tyranny of theft, fear and persecution, The Bernanke led them to a train out of, they thought, the clutches of a dying fiat currency.  Instead, the train whisked them to away to captivity and slaughter at the hands of a conniving ideologue.

The message is clear: the U.S. Treasury gets the carrot, gold gets the stick!

The salesman thanks the customer for patronizing his shop and asks him to come again. But the socialists say: Be grateful to Hitler, render thanks to Stalin; be nice and submissive, then the great man will be kind to you later too.

–Ludwig von Mises

And to top it off, injecting comic relief—in a gallows humor way—the Wall Street Journal publishes former vice chairman of the Fed, Alan Blinder (1994-96, another Princeton boy) piece (on the same day as Bernanke’s remarks in Cleveland) entitled, Ben Bernanke Deserves a Break.

The final outcome of the credit expansion is general impoverishment.

–Ludwig von Mises

Who needs a break?

Marc Faber: “My Favorite Investment remains Gold”

As gold sells-off from a tremendous 29% run from the July 1 low of $1,478, Marc Faber, the editor and publisher of the Gloom Boom Doom Report, told Bloomberg’s Carol Massar and Matt Miller on Wednesday his “favorite investment” still remains gold.

The self-described “greatest bear on earth” reiterated his long-standing view that the Fed will print the U.S. dollar into oblivion in response to sickly economic data that continues to stream in from all sides of the U.S. economy and for as long as the eye can see.

What Fed Chairman Ben Bernanke will say at Jackson Hole on Friday is less relevant to his forecast for the markets, Faber suggested, as the Swiss money manager said the Fed has already embarked on QE3 after it issued a Fed policy statement at the close of the FOMC meeting on Aug. 9, strongly implying that the Fed sees no evidence of a strong-footed U.S. economy anytime soon.

“ . . . the Committee decided today to keep the target range for the federal funds rate at 0 to ¼% ,” according to the FOMC press release.  “The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.”

Immediately following the announcement, the Treasury market, Swiss franc and gold soared, culminating in a two-week follow-through rally in the 10-year Treasury, which saw its yield stunningly drop below 2%, the Swiss franc trade as high as $1.30, and gold spiking to $1,917.90.

Faber believes the rally in these three markets suggests that the effects of the FOMC statement have already begun to manifest themselves in all markets, leaving nothing meaningfully left for Bernanke to add to the FOMC policy statement.  QE3 is here.

Expect a dud from Bernanke at Jackson Hole, according to Faber.  In fact, the gold market may be selling off in anticipation of a “no news” meeting in Wyoming, as Treasuries, gold and the Swiss franc have already priced in quite a bit of QE3.

“I think what [Bernanke] will say is that they are monitoring the situation, and they will take ‘appropriate measures’ when they are required,” he said.  “To some extent we are in the midst of QE3 already, because by announcing the Fed will keep zero interest rates until the middle of 2013 . . .”

Though the same dire issues confronting Western economies (ergo, affecting Asia, too) have not gone away, leaving the Fed no options other than to continue printing money, according to previous Faber interviews.

In fact, according to many respected economists, the overhanging debt loads are heavier today than they were in 2008.  Faber has said on many occasions that he sees nothing but gloom for the equities and bond market for the foreseeable future, and expects that the Bernanke Fed intends to affect negative real interest rates for years to come in an effort to debase the U.S. dollar.  Savers and creditors will suffer during the process.  And, the U.S.-led wars will escalate, he said.

“All I am saying is I am very bearish. I think we will have inflation. I think the Treasury market is a disaster waiting to happen,” Faber declared.  “I think the economy will slow down. They’re going to print money and we will go to war at some stage somewhere.”

He added, “So, you are probably better off in equities than in bonds. My favorite investment remains gold. As it happens, the gold price is coming down, and I hope it will drop $100 or $200. Not necessarily a prediction. I think we will go down in a correction because there has been too much enthusiasm recently.”

Get ready for explosion in gold and silver, says James Turk

James Turk again asserts that gold and silver will soar this summer, citing his conviction that at least a hint of a QE3 announcement is just around the corner.  The last time a hint of a Fed policy move in the direction of monetizing debt was uttered, the risk-on trade to dollar weakness that had ignited the precious metals sector last summer will return with a vengeance this summer.

“When they [Fed] start QE3, the U.S. dollar index will plunge to new lows,” Turk told Eric King of King World News.

In agreement with PIMCO’s Bill Gross, who said Bernanke is likely to at least hint of a QE3 at next month’s Jackson Hole meeting, Turk expects the Fed will make some kind of overture to the markets before the summer is out.

Jackson Hole is an annual central banking conference where central banking policymakers meet to discuss the global banking system.  Last year, Fed chairman Ben Bernanke said U.S. policymakers were contemplating an expansive debt purchasing scheme if the U.S. economy and asset markets warranted further stimulus, which is Fed parlance for preparing the market for the official announcement in the near future.

Following Bernanke’s speech in August 2010, gold rallied $400 and silver skyrocketed more than $30 before settling back off the highs set on May 2.

Curiously, the dollar hasn’t rallied to hold above the 76 level (a critical juncture, according to the Richard Russell of the Dow Theory Letters) during all the turmoil in Europe and the euro, according to Turk.  He thinks that ominous sign of profound underlying dollar weakness will become more apparent to all now that much of the euro’s weakness has been discounted throughout the latest crisis in Greece and its implications for Portugal, Ireland and Spain.

Another sign that the market is calling Bernanke’s bluff can be gleaned from last week’s powerful equities market, Turk suggested.

“I think the dollar chart basically confirms my point that quantitative easing will be started again soon,” he said.  “Last week’s big jump in the major stock market indices is basically saying the same thing.  All we need now is an indication from policy makers that QE3 is imminent.  The effect this will have on gold and silver will be nothing short of spectacular given how sold out both of the metals have become during their correction over the past two months.”

Moreover, the budget battle regarding the U.S. debt ceiling won’t be won by the Tea Party, according to Turk.  The stakes are truly too high.  Many prominent economists claim that the effects on the global banking system and the world economy would be catastrophic and most assuredly usher in a deeper Great Depression than the one during the 1930s.

Instead, the democratic system will be subverted to prevent a U.S. treasury default, according to sources in Washington close to Turk.

“The scary thing is they are going to shove through this debt limit increase one way or another,” concluded Turk.  “If there is an impasse in Congress with Tea Party Republicans holding the line, word has come from Washington that President Obama will use the 14th amendment to declare the debt limit as unconstitutional.  By removing this last piece of discipline, that will open the floodgates and will be the tipping point to send the dollar into oblivion and gold and silver into the stratosphere.”

Back up the Truck on Gold and Silver, says James Turk

The slow summer months for the precious metals market will be anything but slow this year, according to precious metals expert, James Turk.

In an interview with Eric King of King World News, the founder of bullion storage firm, Goldmoney.com, said he expects gold and silver to rally strongly this summer, bucking the 30-year established seasonal trend of softness in metals prices during the summer months of July and August—the time of year when gold and silver typically put in lows for the year.

However, Turk believes the lows were already made in May during the cascading sell off in silver from its perch of nearly $50, taking the white metal to the $32 level and the yellow metal to $1,480 in a sell off—triggered by some profit taking and multiple, rapid succession, and controversial futures margin hikes instituted by the Chicago Mercantile Exchange.

“What we are seeing right now is a double-bottom in silver with gold staying strong near $1,500,” Turk said to KWN.  “With options expiration on both exchanges now behind us, we can expect a bounce from here.”

Turk cites growing tensions among populations around the world as politicians increasingly shift the burden of bad loans made by banks onto the public books.  Greece’s spectral will prove to be only the beginning of civil unrest in Europe this summer, Turk predicts.

“We’ve got civil disobedience growing in different countries,” said Turk.  “People are becoming fed up by bad decisions made by politicians that favor bankers rather than taxpayers.”

“People just have not come to grips with the fact that governments are running out of money,” Turk added, “which brings to mind my favorite Margaret Thatcher quote, ‘The problem with socialism is that eventually you run out of other people’s money.’  There is also a great deal of non-union tension as rising costs are continuing to erode people’s living standards.”

In sharp contrast to predictions made this week by Swiss money manager Marc Faber, who said on CNBC TV12 on June 29 that all asset prices will sink from a lack of Fed “stimulus” from its QE programs this summer and early Fall, Turk sees a rerun of the summer of 1982, instead.

It was then that the government of Mexico failed to make interest payments on its dollar-denominated sovereign notes during Paul Volker’s (the, then, chairman of the Federal Reserve) punishing interest rate increases of both the federal funds rate and discount rate.  Through several currency devaluations, which ensued through to the end of the year of 1982, the Mexican government  kicked off a run on the peso to the safe haven of gold.  Gold soared to more than $520 by the first quarter of 1983, from approximately $290—the low set at the start of the crisis in July of 1982.

Turk expects another run to gold, but this time the people of Europe’s peripheral PIIGS (Portugal, Ireland, Italy, Greece and Spain) will trigger another golden summer of 1982.

“In fact, with bankruptcies of governments becoming more and more likely, the reasons for owning gold and silver have become even more pronounced,” Turk continued.  “Summer has only just started, but I still see this as a summer that will be like 1982, one for the history books.”

Additionally, Turk points out that the gold/silver price ratio has widen significantly since the 31:1 print reached on April 28.  The ratio has since moved back sharply to levels not seen since the 45:1 ratio was taken out to the downside in February during the silver price breakout above the closing high of $30.84 set on Dec. 31, 2010.

“I actually like the action of the gold/silver ratio; yesterday it closed at 44.5 so it is back at support,” said Turk.  “This is a further indication to me that the correction has reached its nadir.  The interesting thing about corrections like this Eric is how rapidly bullish sentiment evaporates even while the fundamental factors driving the metals higher this past ten years remains very favorable.”

QE3 “Coming back on in Spades,” says Jim Sinclair

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.

From CNN:

“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.”