Retail sales plunged 1.2% for the month of May, which came as a complete surprise to the herd of cattle on Wall Street’s cattle ranch, which was looking for more gains. We also saw a surprise increase in unemployment claims yesterday and housing purchase mortgage applications have been in freefall since the home purchase tax credit expired at the end of April. I also made the case earlier this week that we should start to see auto sales start dropping hard again, as the number of people who are taking advantage of the Government subsidized lease financing for GM and Chrysler begins to taper off, like it did with the cash for clunkers program. And I have yet to see any of the above-mentioned cattle discuss or try to quantify the GDP effect of the Gulf oil catastrophe on the economy.
George Soros was in the news today with speech he gave in Vienna yesterday in which he states that “Stage 2” of the financial crisis is starting:
we have just entered Act II of the crisis as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the global economy back into recession…The collapse of the financial system as we know it is real, and the crisis is far from over LINK
While Mr. Soros refers to Europe in his comments, I would suggest that his view applies even more strongly to the United States. In fact, I think it can be strongly argued that several disasterous events are unfolding which are making Obama’s Presidency completely unmanageable (not that anyone else would fare any better, but Obama is not handling this well and has absolutely no experience running anything bigger than a community activist organization).
My view is that, in the event that Bernanke does not want to see an economic collapse this year, the Fed will be forced to implement a second Quantitative Easing program which will be a couple multiples larger than the last one ($1.25 trillion in mortgage monetization + $300 billion of direct Treasury purchases + $200 billion in agency paper – FRE/FNM/GNMA). Bernanke can use the oil disaster plus the melt-down in Europe as his cover story and excuse for cranking up the printing press like this again. When you think about it, he pretty much has no choice unless he wants to see a new President elected by a landslide, in which case the first decision that happens is Bernanke would be sacked – probably the first phone call made after the inauguration ceremony.
If my view is correct, look for gold/silver to start making a big move higher as NFL training camps approach. The metals are holding up extremely well in the context of gold’s typical seasonal weakness right now; China/Russia seem to be persistingly buying up the yellow dog with inexorable demand; and all indicators are pointing toward a growing shortage of actual deliverable bars which are unemcumbered by multiple paper claims, like leases, futures and forwards (please see these comments from Eric Sprott, one of the most highly respected participants in the gold investing community: Deliverable Gold Shortage Brewing).
If gold/silver start to move higher like I expect, the mining shares – which have been lagging gold and are plagued by some of the worst investor sentiment I have seen bull-market-to-date – will make a move to new all time highs.