Tuesday, March 8, 2011

A Summer Commodities Rout?

In the US, the National Federation of Independent Business Foundation has come out with it's March survey.

It says that small business optimism gained 0.4 points in February, rising to 94.5 from 94.1.

Some media outlets have jumped on this saying that it shows “recovery is taking hold,” based on that tremendous .4 rise in an index that is still well in negative territory below the even 100 mark.

Talk about grasping at straws!

As you all know, Consumer Credit is so important to our economy (never mind the massive amout of deleveraging that must occur to allow our economy to rebalance).

Yesterday the state of Consumer Credit was reported. Coming in at an annualized rate of only $5.0 Billion in the United States, it is down from December’s $6.1 Billion.

If you remove student loans, this number would have been negative. If you remove the $25 Billion of government Non-Revolving credit included in this report, it would have been hugely negative. There was a large split between Revolving and Non-Revolving Credit, Revolving credit being negative and Non-Revolving positive.

It's further evidence that the consumer economy is sputtering.

By while the average American has come to grips with the fact he can't keep borrowing his way to prosperity, compare the creation of Consumer Credit to what the US government is creating outside of the Consumer Credit report.

The Congressional Budget Office yesterday announced that the Federal Government’s deficit for the month of February was the largest EVER, at $223 billion! That’s nearly a quarter TRILLION dollars in just one month! It is four times the amount of savings being proposed by the Republicans, and 30 times the saving proposed by the Democrats in their “budget talks.” Talk about exponential growth and impossible math, this is it.

...And that's what they admit to. The part they're hiding with accounting manipulation is even larger.

Which brings us to Quantitative Easing.

There is talk that when QE2 comes to an end in June that the US Federal Reserve will start to withdraw it's stimulus.

Are you kidding?

It can't. Plain and simple.

However there is huge pressure to do so.

Some believe that the US Federal Reserve may just allow a break to demonstate the impact on the economy before resuming QE3 in the fall.

Chris Martenson has come out with a piece he wrote (via Zero Hedge) that follows up on this theme you may find interesting. As Martenson says, "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."

Click on the link for the full article.


Email: village_whisperer@live.ca

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  1. I read that this morning.... and thought.... damn.... I could see that happening so easily.

    But, conversely would enough of the world be fooled... esp if oil prices continue higher.

    After having a few hours to digest the article, I would presume that things are going to get more unstable as prices continue up... I would put a few bucks on they will just QE3 almost immediately after ending QE2.

    Still, its good to be aware of what could happen. I might just save a bit for the Summer... just in case.


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