Today officially marks Financial D-Day – the end of the Federal Reserve's second round of quantitative easing (QE2)… and nothing happened. The yield on 10-year Treasurys jumped just a few basis points.
The market knew it was coming. A friend who runs one of the biggest bond desks on Wall Street said it's business as usual today. The markets are more concerned about Greece.
But don't get used to this calm. The Fed won't keep its finger off the print button for long. As we've said all along, the Fed will only let the country experience a little pain (inevitable as the largest buyer of U.S. debt steps back) before launching a new round of quantitative easing.
Since QE2 began in November 2010, the Fed has bought around 85% of the net Treasurys issued, according to Morgan Stanley economists. And in each of the first six months of 2011, the Fed bought all but $17 billion of Treasurys sold. JPMorgan estimates private buyers will have to absorb $94 billion a month in the Fed's absence. And only one thing – outside of "friendly" nudging from the government – will attract those buyers... higher yields.
Rest assured, we'll see a flood of new cash soon. And that's when the fun starts. In a recent Bloomberg interview, market whiz Jim Rogers said the Federal Reserve is his biggest fear today...
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They don't have a clue about economics or currencies. They don't have a clue about much of anything. And they are dangerous people. They are not doing good things for the world. And they will probably stop QE2… they said it so many times they will. But when things start going wrong again in a few days, weeks, or months, they are going to start printing money again… And that's not good for the world. That's going to lead to more problems for all of us over the next decade. This is a serious problem facing us. |
So what do you want to own when QE3 begins? Precious metals. Gold and silver, as our friend Doug Casey likes to say, are "going to the moon!" Owning gold and silver bullion is the best way to protect yourself from a currency collapse. However, you can make big money buying gold stocks, as well.
We've written several times about how cheap gold stocks are in relation to the gold price. Gold is currently around $1,500 an ounce. But most gold stocks are priced the same as they were two years ago – when gold was $1,000. In his latest S&A Short Report, Jeff Clark writes:
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Gold stocks are cheap. Many of them trade at 12 times earnings or less – a big discount to the S&P 500's earnings multiple – and many of the big name gold companies pay decent dividends. With global economic conditions around the world what they are, it's easy to make a strong fundamental argument for owning gold and gold stocks. |
This one-year chart shows the underperformance…
Jeff has been following the gold sector for weeks in Short Report. And now, one of his favorite technical indicators just hit a "back up the truck" moment. The last time this happened was in February 2010, when gold stocks rallied 30% in three months. And Jeff just initiated an option trade he believes can return 460% as gold stocks rebound. To learn more, click here...
Following up on yesterday's note about Bank of America's $8.5 billion settlement... Bank analyst Chris Whalen, founder of Institutional Risk Analytics, sees more settlement pains for Wall Street.
In an interview with King World News, Whalen commented on the hundreds of billions of dollars of class-action claims…
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The surviving 33 claims, which are straightforward securities fraud claims, much like WorldCom, Enron, and that sort of thing… those claims were settled at 50 cents on the dollar. So today, of the trillion dollars or so in class-action claims that were filed right after the crisis started, there's about $200 billion left that has survived motions to dismiss and other procedural efforts by the banks to knock this litigation out. JPMorgan has somewhere around $45 billion-$50 billion of current claims that look like they are going to go to trial. |
As we said yesterday, the Bank of America case sets precedence. The potential 11-figure settlements facing our country's biggest banks will weigh down shares. Every bank sold shoddy mortgages. And every bank could suffer enormous losses.
Hedge-fund billionaire John Paulson dropped his $30 end-of-year price target for Bank of America, according to CNBC. Paulson, who was the bank's eighth-largest shareholder with 124 million shares, apparently sold a "substantial stake" of his position before the ruling.
Signs of a top... yet another tech IPO. Late yesterday, inside sources revealed LivingSocial – a web service that offers members daily retail discounts – is discussing an initial public offering (IPO) with investment banks. Word is, the company is looking to raise around $1 billion, which would value it between $10 billion and $15 billion. LivingSocial's competitor, market-leader Groupon, already announced plans to raise $750 million in an IPO that would value the entire company between $15 billion and $20 billion.
These potential IPOs come on the heels of news of offerings for Facebook-game company Zynga and Internet radio company Pandora.
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New 52-week highs (as of 6/29/11): McDonald's (MCD).
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Regards,
Sean Goldsmith
Baltimore, Maryland
June 30, 2011
Financial D-Day is here... Jim Rogers is terrified of the Fed... How to make nearly 500% in the gold sector... Big losses are coming for banks... Paulson dumps Bank of America... Yet another tech IPO... Muni downgrades are on the way...