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.
But first, let’s review what I said in The Coming Rout:
There’s a scenario that could play out between May and September in which commodities (including my beloved silver) and the stock and bond markets could all sell off between 20% and 40%. The trigger will be the cessation of QE II and a multi-month pause before QE III.
This is a reversal in my thinking from the outright inflationary ‘buy with both hands’ bent that I have held for the past two years. Even though it’s quite a speculative analysis at this early stage, it is a possibility that we must consider.
Important note: This is a short-term scenario that stems from my trading days, so if you are a long-term holder of a core position in gold and silver, as am I, nothing has changed in my extended outlook for these metals. The fiscal and monetary path we are on has a very high likelihood of failure over the coming decade, and I see nothing that shakes that view.
But over the next 3-6 months, I have a few specific concerns.
(….)
If you have a longer-term view, I have few doubts about the role of gold and silver in the final stages of the fiscal and monetary crises that remain before us.
by hacurio 
