On Thursday, August 4th, the stock and commodity markets took a turn for the worse, the dollar and US bonds went up, and gold held firm.
This pattern is exactly what we have been expecting around here since early March. It still has quite a ways to run, and I remain convinced that it will result in a third round of quantitative easing (QE III).
I laid out this general thesis for what is now occurring in my report, The Coming Rout:
Here’s my prediction; if the Fed suddenly stops the QE programs, the stock market will tank, the bond market will tank, and commodities will tank.
I would expect declines on the order of 30% for the stock market (for the SP500; NASDAQ may go further), 25% for commodities (unless China has a housing crash along the way, and then I’d go for something closer to 40%), and for the ten-year Treasury to shoot up to 5% from its current ~3.5%. I’ve gone a little light on the Treasury decline simply because I think a ‘flight to safety’ will limit some of the damage there. If not, 6% is not unthinkable.
This correction would go on for a while.
Then, after a couple of months of peeking at the dismal market action through gapped fingers, the Fed would reverse course and re-open the monetary spigots. Around September (my initial estimate at this early stage), following huge market losses, a resumption in the housing market crash and a renewed rise in unemployment would cause domestic political pressure to once again trump international pressure.
That all stands, but I thought more detail was warranted and so, in response, this is what I wrote on May 12th in Positioning For The Coming Rout:
My Predictions and Conclusions
I am still convinced that a cessation of QE will result in a rather substantial rout that will see commodities, stocks, and then bonds take serious hits from their current values. As before, my advice is to have a substantial cash position and to protect any paper assets that cannot be sold using puts, inverse funds, or other insurance strategies.
I would expect that any approach of the prior lows in the stock market, down -40% to -50% from here, is a near certainty for another intervention.
by jturbo68 
