For those interested in the QE debate and who have not seen this...

For those interested in the QE debate and who have not seen this before, the following is an opinion from Michael Pento, founder of Pento Portfolio Strategies in an interview on 23 January 2014.

The overwhelming consensus is that the Federal Reserve is going to be able to stop QE by the end of this year -- sometime around early fall. And that it will have an inconsequential affect on interest rates....
“(They also believe) it will also be inconsequential to money supply growth, and it will not affect the underlying economy. I think the odds of that occurring are low single-digits.

I think we are going to see a spike in interest rates. Bear in mind they (the Fed) were 80% of all new issuance. They were indiscriminate buyers and they didn’t care about what price those assets were trading at --they just bought them. Now that this is coming to an end, or at least that’s what they will have us believe, I believe interest rates will rise.

I believe since the level of debt in the economy is $6 trillion higher than it was in 2007, at the beginning of the Great Recession, that is going to cause the real estate market to crumble, the equity market to crumble, the bond market to crumble, and I think that brings us into a recession some time in the middle of 2014.

And if I’m wrong, and the Wall Street consensus is correct, and the end of QE means nothing for interest rates, nothing to the stock market, nothing to real estate related assets, then in that case interest rates will be negative in real terms, and that is also very bullish for gold.

Bear in mind, and I wrote this for your audience a couple of weeks ago, it is now sort of a Zeitgeist feeling out there that gold needs QE to go higher. In other words, if the Fed isn’t expanding the monetary base, gold is going to crumble. Well, that’s not necessarily true. If banks start lending money to the private sector of the economy, like they did in the middle of the last decade, you are going to have booming money supply growth and gold and mining share prices that will respond very favorably.

I don’t think that (Wall Street consensus) is going to happen. I believe that QE is going to be very consequential to interest rates, extremely consequential to money supply growth, and I think we head into a deflationary recession some time in the middle of this year, and that causes Janet Yellen to reinstitute QE and bring it back towards $85 billion to $100 billion per month. And that’s when I think we have a protracted increase in the Fed’s balance sheet going out many, many years, and a huge new bull market in gold.”

Cheers

Paddyboy