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October 30, 2014Key Gold Headlines

QE Is Dead – Long Live QE! (Audio)

In the latest episode of his podcast, Peter Schiff gives his take on the end of quantitative easing. Peter reviews CNBC’s reaction to the news and Alan Greenspan’s opinion of QE. He also shares his own predictions for the future of the American economy and the price of gold.


To watch Peter’s recent CNBC interview that he talks about at length in this podcast, click here.

Follow along with this full transcript:

Well, QE is dead. That’s the way the media is reporting it. Unfortunately, it’s probably dead just like the zombies in The Walking Dead, because though it may appear dead, it’s going to be resurrected and it’s going to be even more dangerous than before it died. QE is dead, long live QE. Of course it can only live as long as there’s support for it in the currency market. Eventually QE is going to die a very unnatural death.

I was quite surprised by the statement from the Federal Reserve. I had expected the Fed to at least acknowledge that the economic data had been softer than they have thought, and express some concern. I also thought they might have made up some concern about inflation being lower and the need to get inflation to be higher. But if you actually read what the Fed produced – their statement – this is probably the most hawkish, the most bullish statement I’ve seen come out of Federal Reserve. I’ll just read a little bit from that statement.

“The committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program.” Substantial improvement. “Moreover, the committee continues to see sufficient underlying strength in the broader economy to support ongoing progress for the maximum employment in the context of price stability. Accordingly, the committee decided to conclude its asset purchase program this month.” That’s it. No warnings, they’re not worried about anything, they don’t have any concerns. Remember, a couple of weeks ago Bullard came out and said, “In light of what’s going on maybe we should pause the taper.” No such concerns expressed here. No concerns about market volatility, or the stock market, or the real estate market.

Everything is great as far as the Fed is concern. Now that could mean one of two things. It could mean that they’re so nervous about the US economy that they’re afraid to even express their concerns for fear of exacerbated decline. So they’re trying to put the best possible spin they can to try to talk the markets up by pretending the economy is as strong as they once believed. That’s one possibility. The other is they’re actually dumb enough to believe that everything is great. They’re so convinced that QE has worked. They don’t even have an open mind to the possibility that it hasn’t, or that the economy hasn’t responded to the medicine as well as they thought.

The market’s reaction to this – The stock market initially declined. But the decline was not that big. The biggest reaction was in the dollar which had a nice rally and gold dropped about 20 bucks. I was surprised that the stock market wasn’t weaker – although I expect the stock market to get a lot weaker in the days and weeks ahead – because remember, the only reason we had this big rally in the stock market was because Bullard threw an olive branch at the traders by suggesting that we might pause the taper and continue QE a while longer. That’s off the table now. If the market really starts to tank there’s no way the Fed can come out and throw another lifeline. They would look completely ridiculous. They can’t keep flip flopping. So I think they boxed themselves in one corner right now by talking about how great the economy is and by ending QE now. They can’t resurrect it in a couple weeks. I think the market’s on its own for a while which means they’re really going to have to turn off the heat before we get the Fed to come in.

The GDP number that came out this morning isn’t going to help. GDP for the third quarter came out at plus 3.5%. That’s stronger than the 3% that had been expected. But of course, the devil again is always in the details and if you actually look beneath the surface of that 3.5% number – which by the way, I would be very surprised if that number is still 3.5% after the next couple of revisions which we will get in the months ahead. I still think that we’re going to have a number somewhere in the 2’s and that it will go lower in the fourth quarter. But if you actually look beneath the surface, number one the GDP deflator was just 1.3%. It was 2.1% in the second quarter. According to government, we had a big decrease in inflation in the third quarter, so that prices are only rising by 1.3%. Again, I find that hard to believe. Buffalo Wild Wings came out yesterday and announced a 3% price hike due to a 40% increase in the cost of chicken. Although that price hike hadn’t taken effect yet. I guess that’ll take effect in the fourth quarter, but I’m sure their experience is typical of other retailers

I don’t believe that prices are only rising by 1.3% but nonetheless, that was the number that the government used to calculate the 3.5% increase in GDP. If inflation had stayed at 2.1% instead of 1.3%, I think that 3.5% number would be eight-tenths lower. It would be 2.7% if you had the same inflation in Q3 as you had in Q2. What’s more troubling is the consumer spending number. Again, consumer spending doesn’t really drive the economy but it certainly drives the GDP calculation because GDP is 70% consumer spending. Consumer spending was only up 1.8%. That’s versus 2.5% that we had in the second quarter, so a substantial deceleration in consumer spending between Q2 and Q3. I think that’s going to continue into Q4.

That was actually the weakest consumer spending number since the second quarter of 2012. If the economy is so robust, why is the consumer struggling with the lowest increase in spending since the second quarter of 2012? Also, adding to the GDP number was a 4.6% surge in government spending. This is the biggest increase in government spending since the second quarter of 2009 when the government was really spending the stimulus money. 4.6% – almost all of that was military. So I guess you can thank ISIS for the increase in GDP. I think that 4.6% jump in government spending added .83% to the total GDP number. Again, just cross that out and you’re down in the mid-two’s, below a consensus.

Another one-time shot in the arm, and this one I think is going to be revised. There was a big drop in our trade deficit for the quarter, thanks mainly to the drop in crude oil prices. But the drop in the trade deficit all by itself added 1.3 percentage points to the GDP. 1.3 out of the 3.5%. Capital investment, business fixed investment [were] also weak, so the mid of the GDP was actually below estimates. You just got a big bump in government spending and you got a drop of the trade deficit – that’s a one-time effect – and we got the 3.5%.

But again, the underlying trends are weak. In fact just yesterday – the day that the Fed came out and said how great the economy was – we saw that mortgage applications, purchase applications, applications to buy homes fell to the lowest level in 19 years! 19 years and that’s when the Fed’s still doing QE. They’re still buying mortgages. What’s going to happen to purchase applications when the Fed is no longer active in the mortgage market? What would happen to those applications if the Federal Reserve actually raised interest rates?

I want to talk a little bit about some of the reaction on CNBC to the Fed’s decision. One, they had an interview with Bob Pisani. Did you ever see the movie Swingers with Vince Vaughn? At the end of the movie he stands up on the table in the diner and says, “My baby’s all grown up.” He’s talking about Jon Favreau’s character. Well guess what, Janet Yellen – we’re going to find out if this stock market in this economy is all grown up because it’s going to stand on its own right now, right Bob? We’re going to find out if all the people that said that stocks only rose because of the Fed, or if the economy and the stock market can stand up on [its own]. I feel like I should say it’s all grown up because it’s going to be interesting for the next few months.

Hey, the market’s are all grown up now. They don’t need the Fed. Listen to what Bob Casoni said. It’s really unbelievable the arrogance or the ignorance that some of these guys have. [Plays CNBC recording] “I think that the evidence is the US economy is rebounding nicely still… I can tell you when I talk to traders who have European clients; they are dying to get into this country. They’re not just buying the stock market; they want to buy real estate. They want to buy anything that is nailed down or not nailed down to get into this country. We’re the hottest economy in the world right now.” [End recording] How can the guy say we’re the hottest economy? We’re the hottest economy in the world right now?

Hottest in the world – we’re not even lukewarm. What’s so hot about the US economy? There are plenty of other economies that have better economic growth and real economic growth than the United States. They don’t have trade deficits. They don’t have current account deficits. They aren’t having all of the support. One of the reasons that the economy is lukewarm or as hot as you think it is, is because of all the support we get from the Federal Reserve. None of the other economies are getting as much support as we have over the years. So we’ve taken more drugs than the other economies and so we’re higher than all the other addicts, but we’re going to come down very hard now that we’re no longer doing it.

Now listen to also Jack Bouroudjian talk about what a wonderful job Janet Yellen of the Fed has done. [Plays CNBC recording] “What Janet Yellen and what this Fed have been doing is absolutely wonderful. They have been able to maneuver their way through this cycle and they’ve been doing it with what? Low inflation, they’re starting to create jobs, you’re starting to see those numbers, we have companies making money in this environment. It’s about time that we quit knocking the Fed. People are not unemployed because the Fed is keeping rates low.” [End recording]

Then I got a kick out of Steve Lichman’s comment. [Plays CNBC recording] “I believe Mario’s sitting at his desk now writing a Dear-Janet-thank-you-note right now. I happen to know that European central bankers have been a little miffed at the Fed. Every time they’ve tried to loosen their policy, the Fed loosens along with them. Today is a historic day in the sense that a very definitive break is also spinning out going two different ways. This is what Mario wants. Mario dragging knees to get to a place where he’s going to do actual European QE recall – European quantitative easing. That’s the expectation of the market as most economists think. In the meantime, the Fed getting a little more hawkish is a big help to Europe.” [End recording]

Europe is glad that the Fed is finally ending their quantitative easing program so they can start their own. If the Fed was doing QE, then Europe wouldn’t get the full benefit of its QE because after all, QE is designed to reduce the value of the euro so that prices rise in the eurozone. Of course they all want inflation. So apparently this is great news because we’re getting out of the QE business just when Europe is getting into it. Now they can get the full benefit of a weaker euro. Because if we were all debasing simultaneously, then they wouldn’t get that relative advantage. This is supposedly great news for Europe.

Also this week, we had more of this deflation nonsense. Sweden reduced their interest rate to zero now and the reason they gave was because inflation was too low. The Swedish economy is doing fine. It’s not what they said. We know we need to create inflation to help the economy. The economy is doing fine. They said they need inflation for the sake of inflation. That somehow, because inflation is not 2% they need to reduce interest rate. Some people were speculating that Sweden is going to do the dumb thing that Switzerland did and peg their currency to the euro too. So now Sweden – who didn’t want to join the eurozone – now they’re going to adopt their currency by default because they want to make sure they get as much inflation as Europe. That would be a reason not to want to be in the euro. You would say, “We don’t want to be in that currency because we don’t want to subject our citizens to higher inflation.” Now they’re saying, “Well we need to peg to the euro because we need to give our citizens the benefit of higher inflation. We all know that inflation is good and price stability is bad.”

One of the guys on CNBC, Ron Insana. I always thought this guy was talking to me and he probably was because I’ve been on CNBC with Ron Insana and we’ve argued before. Ron is talking to the host about the survey that they did where they polled their viewers and they said, “Do you think QE helped the economy or not?” And 60% said, “No.” It actually didn’t help the economy; it actually hurt the economy long term. It helped inflate a bubble in the short run, but we’re going to have to pay for that. He’s talking to Ron Insana and Ron says, [Plays CNBC recording] “I’m not surprised that we had so many people come on our air over the course of several years making really wild claims about what the Fed’s unconventional monetary policies will do. Hyperinflation or falling dollar, spikes in interest rates, stock market pressures, none of which by the way we’ve gotten over the last five years. People who have been bashing the Fed have been dead wrong for this entire period of time and yet, the anti-Fed movement if you will, still resonates with people, because it’s perceived the Fed has helped out bankers and businesses more than individuals. I think that it’s a psychological disconnect here but there’s no doubt in my mind that the Fed did the right thing and continues to do so.” [Ends recording]

Now first of all, the vast majority of people who come on CNBC are not bashing the Fed or QE. You get a few other guys that come on and do it. But the overwhelming number of people are just like Ron Insana. They love the Fed, they love QE, they think maybe it’s too much of a good thing but they never really were critical of QE. So to say that the CNBC audience has been brainwashed based on all the Peter Schiffs, all the guys like me who have been bashing the Fed and saying it wouldn’t work, that’s nonsense. The fact that 60% think that it didn’t help despite the parade of people on CNBC like Ron Insana – who said the other way – Marc Faber comes on, how often is he on talking about the problems of QE? What Ron Insana doesn’t understand is that you don’t see the full impact. You don’t really experience the problems of QE until you stop. It’s like a drug addict. You don’t experience the withdrawal until you stop using.

The hard part is not starting QE. That’s the easy part. The hard part is stopping. The easy part is to lower interest rates to zero. The hard part is to raise them from zero. The fun part is getting drunk, getting high. The not-so-fun-part is sobering up. Ron Insana seems to think everything is great. Well we won’t know that. It’s like he wants to give the Federal Reserve credit for a brilliant flight, a safe flight, and the plane hasn’t landed yet. All they’ve done is take off. Put the plane on the ground and then talk about what a success the flight was. The problem is the pilots still don’t know how to land the plane and it’s going to crash. It’s not going to feel very successful to the people who’ll die in the explosion. Maybe they think it’s great now because they’re still back in the plane, drinking and watching movies. They don’t realize that it’s being piloted by somebody who doesn’t know how to fly.

So all these are premature celebrations. But I tell you, Ron Insana may think that QE is a great thing and the US economy is in great shape but there’s another person who doesn’t agree. That is Alan Greenspan. Alan Greenspan finally, finally – and this is also probably a very ironic statement but he was speaking at the Council on Foreign Relations just the other day… He basically said that there is no way that the Fed can end QE without creating turmoil. He was asked if he thought there would be a crisis and he said, “I don’t really want to use that word.” [Plays recording] “Well let’s leave the word crisis out… If I can use the substitute term turmoil.” [Ends recording] I think there are other words that could be more appropriate like disaster, economic apocalypse, or armageddon. I think the former Fed chairman is sugar coating it.

But his criticism of quantitative easing… and he basically said it didn’t work. He said quantitative easing didn’t work. Not only it didn’t work, it did harm. If it just didn’t work that wouldn’t be so bad. The fact of the matter is it did tremendous harm to the economy. It has structurally weakened the economy in the way that it’s only become apparent now that the Fed is no longer doing it. You can’t feel the pain because you have Novocain. Well when the Novocain wears off, then you feel the pain. It’s starting to wear off now that the Fed said it’s no longer doing QE and even though it still has its huge balance sheet that it can’t do anything with, it can’t shrink. Alan Greenspan referred to that balance sheet as a tinder box. He said it’s a tinder box, it just hasn’t been lit yet. Meaning it’s going to be lit and he said we’re going to have a lot of inflation.

He’s saying the same thing as Peter Schiff. Maybe he’s not saying potential hyperinflation, but you know that he probably thinks that. He’s just trying to be careful with his words. This is too late. Why did Alan Greenspan wait for the Fed to end QE before criticizing it? Why didn’t he criticize it from the beginning like I did? It might have made a difference if Alan Greenspan had come out against QE from the inception of the program. Maybe we wouldn’t have had QE2. Why did he wait until the Fed said it’s finished before finally saying, “You know, it’s not a good idea and it didn’t work.” Did he actually have to see it not work to make that conclusion? No, he had known it from the beginning that it wouldn’t work. He just didn’t want to be critical. Now that he knows that there’s going to be a crash he wants to somehow disassociate himself from the policy so he can say, “I told you so. I warned you.” What good are your warnings now? We needed you years ago. He should have been criticizing the Fed like I was.

One of the interesting things [is that] he’s not really getting courted in the mainstream media for what he said over at the New Orleans Conference. I was down there in New Orleans for that conference and Greenspan was a keynote speaker. In that conference again, he reiterated the fact that QE didn’t work, that the balance sheet was a tinder box. That’s where the tinder box come and came from, not from the Council on Foreign Relations. That’s where the turmoil came from and that the Fed can’t exit without creating turmoil. When he was talking about that tinder box, he was asked specifically, “What’s going to happen to the price of gold?” He said, “It’s going up.” Then he was asked, “Well by how much?” He said, “Measurably.” I think he means that it’s going to get up a lot. Obviously you can measure anything but I think he means that there’s going to be a significant increase in the price of gold because he believes there’s going to be a significant increase in inflation.

But one of the most interesting comments or maybe disturbing comments that Greenspan made is when Marc Faber was basically rightly criticizing the Fed he said, “Look, Greenspan, you were the enabler, because of you, because of the Fed, because of your monetary policy, you enabled big government. You have financed this deficit. You were an enabler of the welfare state. You allowed the government to spend a lot more money than it would have been able to spend. Had you not been so accommodative, had you been more independent.” Then Greenspan basically had the nerve to tell Faber, “You’re wrong. You got it backwards. It’s not my fault. It’s congress’s fault because congress voted for all the spending. They voted for all the deficits and we at the Fed had no choice but to do congress’s bidding because they were in deficits, we had no choice but to accommodate them or monetize them.” Then Faber said, “Well isn’t the Fed independent? What about Fed independence?” And Greenspan says, “Well whoever said the Fed was independent?” Well he did. Everybody did. They all maintained it was independent. Now Greenspan is saying, “Well we were never independent. We’re just the lap dogs of congress. We have to do whatever they want. We have no independence whatsoever. We exercise no restraint or no control.”

I’ve always thought that was the case. I always believe that the Fed acted as an extension of the government, as an arm of the government, but now you have a former Fed chairman admitting that there’s no independence. In fact when they all opposed the Ron Paul Audit-The-Fed bill, it was all about, “We can’t compromise the independence of the Fed.” Well, here’s Greenspan saying the Fed never was independent. It was supposed to be independent way back a hundred years ago when it was conceived, but it sure as hell hasn’t been independent lately. What I would say to Greenspan if I have the chance, “That’s not true. You could have stood up. If you were brave instead of being a coward, instead of a traitor – a monetary traitor – you’re the Benedict Arnold of our time.”

He could have stood up and said, “You know what? I’m not going to cooperate. I am going to exercise my independence. I refuse to monetize these debts.” He could have done that if he had any courage, but no, he just bowed down and he wanted to cater to not only the government but to Wall Street. Everybody loved him. He was the life of the party. He was the guy that will spike in the punch bowl. He didn’t want to stop. He didn’t want to be the party pooper. He ended up being knighted by the queen. He enjoyed the accolades. He enjoyed the reverence. He enjoyed the maestro, the idea that he could keep everything going. It is his fault. I disagree that he just had to do what congress said.

Also at the conference when he was asked about the gold standard, “Should we go back to gold standard?” Obviously he wants to go back to gold standard, but he said that the gold standard is inconsistent with the welfare state. What he meant was, the politicians want to promise something for nothing. They want to run up big debts and then they want to inflate them away. You can’t do that under a gold standard, which is the reason that the gold standard is so desirable in the first place. It prevents politicians from acting recklessly and irresponsibly. If we were on a gold standard we wouldn’t be in this mess. What also might have prevented some of this would have been a stronger Fed chairman.

Because oftentimes, when [Alan Greenspan] was Fed chairman and he was asked about gold, he said we don’t need gold anymore because we have this independent Federal Reserve [that is] very smart and can replace gold, who can discipline governments the way gold used to. But now we know, he comes out and says, “Well we never disciplined anybody. We didn’t exercise any influence on government. We were just rubber stamps. We had no choice but to do what congress wanted us to do.” Why was he not saying it back then? It’s all very convenient. Too little too late. Now he comes out almost like a death-bed confession and starts to tell the truth.

Of course I’ve been telling the truth about quantitative easing all along. I’ve been telling the truth about it since before they hatched the first round. I’m just as convinced that we’re getting QE4 and it’s going to take awhile. It’s going to take the market or the Fed a long time to fess up and admit that, but that is exactly what I believe is going to happen. I was on CNBC – not on the television. I was on their website, on the show Futures Now – and they brought me under to talk about QE. Then they kind of ambushed me by bringing a clip of me two years ago talking about gold $5,000. Of course there’s all kinds of clips of me on CNBC with all sorts of predictions that have come true. But of course they never want to show those. I just want to show this one that they found where I talk about Gold $5,000 two years ago and I want to say, “Hey, Peter you said gold would be at $5000 in two years and it’s been two years and look, it was $1700 when you came on and now it’s $1200. Look how wrong you were.”

One of the interesting things about this, is if you actually listen to the sound clip that they played, and when I mentioned gold $5000 and I said it could get there in a few years. A few years. I didn’t say a couple of years. I didn’t say two years. I said a few years. So it’s a bit premature to come on and harass me for that because a few is not two. A few is three, but it could also be four, five you could also argue that that’s a few. Because all few means is a small number that’s greater than two, because two is generally considered a couple. So if I said gold could be at $5000 in a few years, I certainly wasn’t saying it will be there definitely in two years. A few is an indescript number. Three but it could be a little bit more. It’s just not a lot. I was talking about it’s not going to take decades. It’s going to happen relatively soon. That was all I said. Now later in that interview they asked me again about $5000. I didn’t mention $5000 but I did say I think gold could make a big move in the next two years… in a couple of years. A big move. “A big move” doesn’t mean all the way up to $5000.

It could have just meant another $500; I know I said a big move. It actually did make a big move. It made a big move down. But I didn’t mean that, but technically I said a big move. I didn’t specify direction. I always said that gold will go up to $5000 in a few years, but they all wanted to pretend that I specifically said it would be at $5000 in two years including this guy, Scott Nations who came on. This guy’s on there with me and I can’t see him. I never heard them introduce him. I just thought it was another CNBC anchor, somebody that works there that was harassing me. I didn’t know it was another guest. I had no idea because they didn’t tell me that. I thought I was the only guest. I just thought that it was one of the CNBC crew. I’m actually talking to him as if he works for CNBC which is why I said the things that I said. But he was saying, “Hey, when are you going to admit you’re wrong? You’re doing damage. You’re giving people advice and they’re losing money.”

First of all, even if you bought gold at $1700 and now it’s at $1200, yeah you’re down but there are plenty of people who have bought stocks, who have listened to stock recommendations on CNBC, where someone comes out and says buy some stock and it drops a lot more percentage-wise than that. Stocks have been destroyed. Stocks have been recommended. I pointed out – What about all the people that came on in 2000 when the NASDAQ was at $5000 touting all these stocks. They were saying the NASDAQ’s going to $10,000. The NASDAQ is still below $5000. Every time one of these guys comes on CNBC they don’t say, “Well you are predicting higher stock prices for the NASDAQ in 2000 and the NASDAQ is 500 points lower then. It was then and it spent 14 years. You’re wrong. Are you going to admit you were wrong?” What’s the point? Clearly, I was overly optimistic. I thought the price of gold would go at that time. Now the question is why? What’s happened during those two years that has sidetracked or slowed down the rallying gold?

A lot of things have happened to slow it down, but all the fundamentals are still intact. So gold is still poised to get to $5000. Maybe it’s going to get there at a later date. Maybe it won’t be three years; maybe it’ll be five years, which still might be technically a few years. But the point is, there have been a lot of people coming on CNBC giving a lot of bad advice. Again, does he put it into context? Do I ever come on CNBC and say put all your money in gold? No. I say, “Own some gold.” Do I tell people to go out and borrow money on futures contracts or buy a bunch of options because I guarantee the price of gold is going to be at a certain price at a certain date? No. I caution people that things can take longer than we expect. That you’ll never know what might happen. That there’s so many factors that might interfere and unknowns that nobody can anticipate.

The bottom line is most people still haven’t figured out the box the Fed is in. They still believe that QE is ending. They still believe the Fed can increase the balance sheet. They don’t realize what Alan Greenspan realizes – that the balance sheet’s a tinder box and it’s going to explode. That the Fed is stuck. That they can’t unwind it. That they haven’t solved the problems. They exacerbated them. Whatever the markets were worried about in 2008, 2009 – all those problems are worse or not better. I know that. Alan Greenspan knows that. But the vast majority of people buying dollars and selling gold haven’t figured that out yet. But eventually they will.

If you haven’t seen that interview – it’s about a 14-minute interview on the CNBC – It’s up on the YouTube channel. The title of the video is, “Is Peter Schiff wrong on gold?” Just check it out for yourself.

Meanwhile, the market is trading firmer this morning. This is the first day after the Fed announcement. We got the GDP number and the markets are initially reacting positively but I do not expect the good times to last. I think reality is going to start to set in. You’ve got all these traders now that realize that the Fed’s safety net is not there. Even though I believe it will be there at some point, the conventional wisdom now has got to be that it’s gone. The Fed has taken the training wheels off the bike. The problem is I say there are no other wheels, those are the only wheels. But the guy on the bike still can’t ride it without those wheels. He still depends on those wheels and now he doesn’t think they’re there, it’s going to be a wreck.

I think that this rally in the market is going to be short lived and the pain is going to intensify to the point that the Fed is going to have to come back in. Not just with talk, because the markets won’t believe talk now. After Bullard comes out and says, “We need to be cautious.” Then given the state that we just had, I don’t think the Fed can talk this market up anymore. It’s going to have to act the market up. It’s going to have to do something. Action is going to speak much louder than words. They’re going to have to come back in with QE4 and it’s going to be hard. I think they would have been smarter to pause. I think it would have been easier for the Fed to ratchet back up QE if it never ended it. But now that it’s ended it, I think it’s going to take much worse economic numbers.

It’s going to take a much bigger decline in the markets to bring the Fed back to the QE table. There is a lot of short term risks in the market. As far as the gold market and the currency market, maybe we’re near the lows there. The dollar hasn’t had that bigger rally considering what the Fed said. Gold was sold off but still hanging on at the $1200 support level. We’ve been at this level before and there is plenty of buying. A reversal in the currency markets in the dollar could be closer and even the oil market. Oil is still hanging in now above $81 a barrel. Given the rally that we had yesterday in the dollar, we didn’t get any real weakness in crude oil; we’re getting a little bit of weakness today. But those markets appeared to be stabilizing.

I think the greater risk is just in the US equity markets, and maybe now also in the US bond market. The long-term treasury market has been boosted. I think maybe [on] the belief, the correct belief, that the Fed was not finished with QE now; that they’re bluffing. Again, this is just one big bluff that they’re ending QE, and they’re really taking it. It’s like a game of chicken and they’re really in that car, they’re not blinking, but they will. At the end of the day they always do. But they’re pushing the envelope and so there is going to be a lot of volatility. To use Alan Greenspan’s words, “A lot of turmoil” now that the Fed is trying to end QE.

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