RasinCane

Mr Hussman's essay is a read that no one should miss. He lays out the possibilities going forward and what will result from each possible choice the Fed has available. There is also a pretty accurate time scale for the end of QE2, with rational, and some interesting charts provided. A brief segment from the essay, enjoy:

LINK

"A week ago, Charles Plosser, the head of Philadelpha Federal Reserve Bank, argued that the Fed should increase short-term interest rates to 2.5% "starting in the not-too-distant-future," preferably during the coming year. Given the robust historical relationship between short-term yields and the amount base money per dollar of nominal GDP, we can make a fairly tight estimate of how much the Fed would have to contract the monetary base in order to achieve a 2.5% yield without provoking inflationary pressures. While the monetary base will be over $2.5 trillion by the end of this month, a 2.5% interest rate would require a contraction of about $1.4 trillion in the Fed's balance sheet, to a smaller monetary base of just over $1.1 trillion.

[Geeks Note: The interest rate estimates here are based on the inverse of the liquidity preference function, which explains 96% of the historical variation in money holdings as a fraction of nominal GDP. The dynamic equation is i = exp(4.25 - 129.87*M/PY + 84.42*M/PY_lagged_6_mos). This has the steady-state of i = exp(4.27 – 45.5*M/PY). See the original "Sixteen Cents" piece for further details].

In his comments, Plosser discussed a plan to sell about $125 billion in Fed holdings for every 0.25% increase in the Fed Funds rate. That overall estimate (implying $1.25 trillion in total balance sheet reductions) is slightly low, but close to our own calculations. Plosser's estimates correctly imply that a 2.5% non-inflationary interest rate target would require the Fed's balance sheet to contract by more than 50%.

The problem, however, is that the required shift in the monetary base is not linear. It's heavily front-loaded in the sense that massive reductions the Fed's balance sheet would be required in the first few hikes (see the scatter plot near the top of this comment). Based on the historical liquidity preference relationship (which explains about 96% of the variation in historical data), and assuming nominal GDP of $15 trillion, the following are levels of the monetary base consistent with a non-inflationary increase in short-term interest rates up to 2.5%. The non-inflationary provision is important. You can't just allow interest rates to rise without contracting the monetary base. Otherwise, as noted earlier, non-interest bearing money would quickly become a hot potato and inflation would predictably follow:

Treasury bill yields and monetary base consistent with price stability
0.03%: $2.60 trillion
0.25%: $1.92 trillion
0.50%: $1.68 trillion
0.75%: $1.54 trillion
1.00%: $1.44 trillion
1.25%: $1.36 trillion
1.50%: $1.30 trillion
1.75%: $1.24 trillion
2.00%: $1.20 trillion
2.25%: $1.16 trillion
2.50%: $1.12 trillion

The upshot is that Plosser's estimate of about $125 billion in asset sales for every 0.25% increase in yields is a reasonably accurate overall average, but the profile of required asset sales is enormously front-loaded. The first hike will be, by far, the most difficult. In order to achieve a non-inflationary increase in yields even to 0.25%, the Fed will have to reverse the entire amount of asset purchases it has engaged in under QE2. Indeed, the last time we observed Treasury bill yields at 0.25%, the monetary base was well under $2 trillion.

In my view, this is a major problem for the Fed, but is the inevitable result of pushing monetary policy to what I've called its "unstable limits." High levels of monetary base, per dollar of nominal GDP, require extremely low interest rates in order to avoid inflation. Conversely, raising interest rates anywhere above zero requires a massive contraction in the monetary base in order to avoid inflation. Ben Bernanke has left the Fed with no graceful way to exit the situation."

In 1792 the US set the gold/silver ration at 15:1 so Eric might be a bit optimistic in his prediction. But in 1792 the world was not producing sooo many items that needed silver content and most of the world was not producing unlimited fiat. Then again, Eric has access to much better info than I do. At any rate, here is a little of what Sprott has to say:

"What the so-called silver ‘experts’ neglect to account for in their models and projections is that the fiat money experiment has failed. And in this context, we believe the Market has assigned world reserve currency status to gold - not USD, not EUR, and not JPY. In our opinion, gold’s continued appreciation vis-à-vis every currency is assured because the great flight from fiat has only just begun. Like gold, silver also has a long monetary history, and as such, investors are now also buying silver as protection from the ravages of fiat currency debasement. Yet, when compared to gold, it is silver that offers the most attractive value proposition by virtue of the gross mispricing of its scarcity, which, we might add, has existed for many years. Thus, in our opinion, as this new bimetallic standard takes root, silver investors will continue to be justly rewarded with marked outperformance. We truly believe that this is the investment opportunity of a lifetime, and increasingly so, others are taking heed. What is clear to us is that with equal investment dollars now flowing into silver and gold, the current 35-to-one ratio is unsustainable and has only one direction to go: lower."

LINK

Kitco? In two words? Jon Nadler.

All you need monitor is how long the Fed is going to continue the QE program; ie, printing tons of fiat. Stay near the exit and be ready to head out. The hyperinflation vs inflation vs deflation debates are simply distractions. Just watch the Fed cause they are running a command economy. If you don't see what is going on you are not paying attention.

I had some silver but bought more when it passed $7, which was considered a major hurdle at the time. Bought more at 12 and again at 17. I am happy with it's performance. It will continue to do well as long as central banks print tons of fiat. So will gold and most commodities.
I'm a little surprised that my natural gas plays haven't done better but I think the entire energy sector is about to explode higher, including U.

What's up Greek?

Commodities peaks will come when govs/central banks stop printing tons of fiat. Right now there is too much fiat 'slosh' seeking returns above inflation and commodities are one choice for parking slosh. PMs are an especially good choice because they offer a safe haven from inflation right now and their trend has been up. Emphasis on the right now, for things will change quickly when CBs cut down on printing. But, conditions will change for all asset classes when the reduction in printing arrives. See 'Edging Toward The Door' that I posted in another thread.
The US is in a bind because of the enormous build up of public and private debt, and also because the US did not let the system cleanse itself by letting bankrupt institutions go bankrupt, opting to prop them up instead. So printing excess fiat by the Fed will continue until some of the debt is reduced in real terms; ie, the dollar loses purchasing power. On the other hand the Fed/Treasury cannot print so much that the dollar loses all value and/or reserve currency status.
Be near the door when the printing stops or is drastically reduced. Also, don't disregard the possibility of black swans to suddenly appear, throwing everyone's plans into dissaray, like the evolving story of the Japanese nuke disaster's effect on the row economies.
So, my 'consus peak' is dependent on what central banks do going forward. Long dated treasuries could become very good investment vehicles again as the were in the early 80s. If the 30 year begins paying 17% and the Fed is holding interest rates above real inflation who would sneeze at the 30 year? Stay near the door, stay nimble.

I'm relived that you believe a negative S%P outlook is good news you're spinning away like a washer and going nowhere like a washer nothing beats a try but a flop lol

Here is a list of 25 spin techniques in case you missed it:LINK

Party like there is no tomorrow. In the end all you have are memories and you certainly won't be sorry for the trips you took, but you will regret skipping some trips that you could have taken. Ask yourself this; did I come here for a long time or a good time? Even if you do decide to try to become filthy rich what are the chances of that happening in the US today? Of course, there is the lotto if you feel lucky and there is that outside chance that you will buy the one asset class that absolutely NO ONE wants and you can hold it for twenty or thirty years and make a bundle. Most don't have the patience for that one.
This is not a recipe for getting rich or investment advice. Good Luck!

The pols are still being pols knowing that IBGYBG (I be gone you be gone) and are continuing to act as if all is peaches and cream.
But, the smart money is edging nearer the door; they realize that continuing QE is becoming more iffy by the day.
Here is an interesting take on the S&P action from ZH and what it might mean for your future. It is worth your time to read it all but skip most of the comments.

"Stocks have rallied from 900's to 1,300 as the smart money bet on unwavering and unlimited government support. Tepper was spot on. He called it for what is was. Now, smart money may be realizing that the game is over. There was already concern about the ability to continue the QE franchise, but this [S&P blather] adds another obstacle to including it. There was always the hope of another round of stimulus on any economic weakness, this also just took a little hit. Today's market reaction is a direct result of a growing realization that the fed/government put may not be there, or may be struck lower than we realized. The pundits can continue to be wrong about their budget commentary, can scream til they are blue in the face that the rating agencies don't get it, but we have moved one more step towards that slippery slope where government support for stock prices is getting more difficult to implement."

LINK

Since I don't know rivers I don't know if that is a complement or an insult. You would have lost your 1K though. I take it he/she was/is a gold bug?

Larry Summers 'used' the Harvard Endowment. He helped Harvard lose a boat load of dough. Then ol Larry got a government post. Revolving door policy, gotta love it.