Bud Conrad: PODCAST: Japan Is Forcing Us Out of the Eye and Into the Storm

Chris Martenson posts a warning on his pay-for website regarding the possibility of a Fed move to limit QE after QE2 finishes in May.  You can read the first half of his post which includes some analysis and reasons for his warning - PART 1 is free on his site.  You will not be able to read PART 2 which includes the Martenson opinion on "what to do" without a paid enrollment to the site.  So you'll have to pay up, use your brains, or go to Zero Hedge for those answers.  All aside, Martenson has a great site (advertisement free), a free e-mailing he puts out, and lots of compiled materials and benefits for his subscribers, not the least of which is his analytical input which I find to be very calmly presented and empirically derived.  Recommended for your consideration.  (Disclosure: I subscribe to the Freebies and do not get any kick-back for promoting his site.)


http://www.chrismartenson.com/blog/coming-rout/53869

The Coming Rout

Tuesday, March 8, 2011, 9:37 am, by cmartenson

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.

First, on March 2, 2011 Bernanke said this:
Bernanke Signals No Rush to Tighten When Asset-Buying Ends

March 2, 2011
Federal Reserve Chairman Ben S. Bernanke signaled he’s in no rush to tighten credit after the Fed finishes an expansion of record monetary stimulus, seeing little inflation risk and still-slow job growth.
A surge in the prices of oil and other commodities probably won’t generate a lasting rise in inflation, Bernanke told lawmakers yesterday in semiannual testimony on monetary policy. A “sustained period of stronger job creation” is needed to ensure a solid recovery, and the Fed’s benchmark rate will stay low for an “extended period,” he said.

The "no rush to tighten credit" statement is a signal that the Fed will neither raise rates at the end of the QE program nor perform reverse POMOs where it reels cash back in and pushes MBS and/or Treasury paper back out.
Upon the cessation of the QE efforts, and the cessation of $4 billion a day in Treasury buying pressure, it's a safe bet that market interest rates will rise.  Bernanke is at least on record as saying that if this happens, it won't be because the Fed has taken the lead.
Bernanke was being a little bit sloppy in his statements, because stopping QE will serve to tighten credit simply because there will be a lot less liquidity sloshing around the system.  It's a situation where the absence of excess is the same as the presence of tightness, if that makes any sense.

Then on March 5th, a much stronger and clearer signal was given, confirming my worries:
Fed Policy Makers Signal Abrupt End to Bond Purchases in June

March 4, 2011
Federal Reserve policy makers are signaling they favor an abrupt end to $600 billion in Treasury purchases in June, jettisoning their prior strategy of gradually pulling back on intervention in bond markets.
“I don’t see a lot of gain to reverting to a tapering approach,” Atlanta Fed President Dennis Lockhart told reporters yesterday. “I don’t think that is necessary,” Philadelphia Fed President Charles Plosser said last month.

Whoa.  This is important news.  Not only a cessation of QE, but the possibility of a sudden stop is being telegraphed.  This will change everything.
The old saying 'sell in May and go away' might never be truer than this year, although with this sort of a warning, the cautious investor may want to get a head start on things and sell in March or April.
For some time there have been rumors that the Fed has been splitting into...  SEE PART ONE HERE on Chris Martenson's Site



UPDATE - RELATED:

Advice On How To Trade Gross' Treasury Dump From A Former PIMCO Employee - ZeroHedge