Insider

The first-quarter economic results for Japan were grim, revealing an annualized rate of contraction of -3.7% over the first three months.  Note that the earthquake struck on March 11, so there really are only a couple of weeks of “earthquake impact” in that number.

The next quarter’s numbers will be even grimmer (that’s a prediction), and this will catapult the Japanese deficit and sovereign-debt readings into brand-new territory.

In response to the last piece, several of you asked me to clarify my views on gold and silver, especially regarding whether this is a good time to buy…or sell.  Here are my thoughts.

I’m going to preface the views that follow by saying that they utterly depend on QE II (quantitative easing) ending on schedule and as advertised. There are numerous ways that the Fed might short-circuit the proposed termination of QE, such as simply calling “additional money-printing” something else, asserting that it is being done for some other purpose, or other new sets of reasons. What we are looking for, very simply, is for the Fed’s balance sheet to stop expanding. Even here we have some difficulty. Although the Fed publishes the data at a high level, we cannot easily track whether or not it is playing games by revaluing the assets already on there, or even whether the Fed is being truthful. Without an audit, we’ll never really know.

Positioning For The Coming Rout

Thursday, May 12, 2011

Executive Summary

• What private and public debt levels are telling us
• Housing’s prospects for worsening the situation
• Why endless compound growth is impossible
• The crushing pain of a deflationary downdraft
• Predictions and conclusions for the future

Part I – Why Growth Is Dead

The rout is on.  More market weakness lies dead ahead – unless the Fed reverses course, and soon.

Eight weeks ago, on March 8, 2011, I wrote that there was a very high chance of a rout in all of the major markets – stocks, bonds, and commodities – due to the sudden disappearance of quantitative easing (QE) money at the end of June.

Since markets are supposed to be forward-looking, if the ‘rout’ thesis is correct, we’d expect the markets to begin selling off well before the last POMO. Perhaps even right about, oh, say this past week.

Following several months of remarkable price appreciation, precious metals (PMs) have been experiencing whipsaw volatility over the past 48 hours. Quite understandably, PM investors (and those thinking about becoming ones) are trying to make sense of what’s next for gold, silver, and the miners. Many of you have written in to us with the questions you’re most interested in getting insight into.

This morning, I spoke with three respected experts in the precious metals field. According to their expertise, I put a brief question to each: 

• What’s behind the current downdraft in bullion prices? (Ted Butler)
• Having lagged the increases seen in the metals, are the miners attractive here? (Frank Barbera) 
• For money looking to enter the PM market, is now a good time to enter? (John Doody)

Here is the summary of their responses:

The economic impact of the earthquake, tsunami, and ongoing Fukushima disaster on Japan’s economy, that is.

Of course, that’s not much of a surprise to readers here, but it will definitely be creeping out into the broader markets over time, and should be fully recognized in another two months or so.

The economic minister of Japan, not usually given to anything other than very measured statements, has come out with some rather bold pronouncements, including the idea that Japan may have difficulty financing all of the costs due to an already too-high level of debt.

Here’s the story: