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October 22, 2013

Could we see quantitative stimulus until the U.S. Dollar implodes?


''Well, the market has had all day Tuesday to digest the lackluster jobs data.  The good news is that the unemployment levels are declining, and jobs are being created rather than be destroyed.  But if the Fed is still going to use the job market as a lever for its $85 billion a month asset purchasing plan, then we've got a way to go before QE gets tapered down to size, says uber-contrarian Marc Faber in an article today sent to Daily Reckoning newsletter subscribers.

'Although the Fed may realize (though I doubt it) that the current asset purchases have minimal impact on the real economy of the majority of American people, they probably think that continuous monetary stimulus is the lesser of two evils.  This is a wrong assumption, in my opinion, because prices are rising far more than wages and salaries,' Faber wrote.

Then on Monday, never one to disappoint the financial media dramaturgs, Faber told CNBC that 'The question is not tapering . . . it is at what point will they increase the asset purchases to, say, $150 billion, $200 billion, a trillion dollars a month?'

Probably never, but if it ever does come to that, the United States economy would have essentially become the old Soviet Union, whereas the government is the only thing keeping this thing from imploding . . . until it finally implodes.

The market was surprised when the Fed opted against tapering at its Sept. 18 meeting, with economists at investment banks and fund managers from New York to San Fran stretching out their expectations for a taper date.  No one wants to be left holding a QE portfolio in a post-QE world.

'It's going to be harder to extract the signal from the data, and the Fed's policies are tied to the data,' Laura Rosner, an economist for BNP Paribas told Bloomberg on Oct. 19.  'They're waiting for more confirmation the economy is moving in the direction of their outlook, and if we don't have data or it's inconclusive, then the Fed isn't going to feel confident enough in the outlook.'

The Fed will reduce monthly purchases to a $25 billion a month by July and end the program at the October 2014 meeting, according to the survey conducted this week.

Purchasing distressed assets like mortgage backed securities and forcing interest rates low by buying Treasurys has been the Fed's main hope to give banks injured by the 2008 financial crisis some more recovery time, and -- just as importantly -- give consumers low cost of credit to refinance and buy homes.

Faber thinks it's not working.

On housing, data through July for the S&P/Case-Shiller Home Price Indices showed increases of 1.9% and 1.8% from June for the 10- and 20-City Composites.  For at least four months in a row, all 20 cities showed monthly gains.  Over the last 12 months, home prices rose 12.3% and 12.4% as measured by the 10- and 20-City Composites.  The year-over-year returns show a brighter outlook with 13 cities posting improvement in July versus June values.

Existing home sales fell 1.9% in September to a seasonally adjusted annual rate of 5.29 million from 5.39 million in August but were still up 10.7% from last year, the National Association of Realtors said on Monday.

So housing looks decent looked at from afar.

Then there's today's jobs report.

September's figures, delayed more than two weeks because of the government shutdown, showed that employers added just 148,000 non-farm jobs as the unemployment rate fell to 7.2% from 7.3%.  Economists surveyed by Bloomberg expected 180,000 job additions last month and unemployment to be unchanged at 7.3%.  The labor participation rate was unchanged at 63.2%.

None of this is particularly great news for the end of QE.''

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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