One possible roadmap for the next few months.

Quiet start - VHF

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$600 Billion For This?!?

Graham Summers

May 19, 2011

Many commentators are baffled that Ben Bernanke decided NOT to announce QE 3 a month ago.

The reason for this is obvious: the Fed only got about three months’ worth of positive economic movement from QE 2 and it blew gas and commodities through the roof doing it.

Remember, QE 2 was only just announced in November 2010. And anyone watching the US economic data knows that we took a sharp turn for the worse in Feb 2011.

So all told, we spent some $600 billion and only got about three months’ worth of improved economic data (not to mention that this “improved” data was massaged heavily).

So it’s pretty obvious why the Fed hasn’t announced QE 3 yet… it needs things to get terrible in the financial markets again so everyone will be clamoring for it to intervene.

Remember last year? QE ended in March. Then we get the worst May performance in over 40 years with stocks dropping like a brick… which then allowed the Fed to announced QE lite and QE 2.

Just like today.

The Fed is going to let QE 2 end in June. We will very likely see some kind of collapse in stocks start even before then. My personal expectation is the S&P 500 will drop to 1,100 or so at which time it will announced QE 3 with a “SEE? We NEED Qe in order to keep things afloat.”

And that’s when the US Dollar will REALLY collapse and inflation hedges will explode across the board.

The Fed is already setting this up. Their latest FOMC minutes make it clear that they are downplaying the negative news today so that when things get REALLY bad in a few months, they can act surprised and push for a MASSIVE QE program.

So in the near-term deflation is now the biggest risk. It may only be for a month or so, but it’s coming (commodities’ and the US Dollar’s performance over the last two weeks were the warm-up. And then comes the REAL fireworks.