GDPs, Gold, Silver and double dips- June's the month!

By: Richard_Hartley

Undeniably there has been some GDP growth but as Ben Bernanke said yesterday at what point does Quantitative Easing stop making sense. The truth is that the payback in jobs is the monitor he is using

The UK yesterday managed to balance the GDP deficit from Q4 2010 with a 0.5 % increase in GDP. Usually UK GDP is revised slightly upwards as more figures come to light. The UK is mid stream in major economies and ahead on GDP compared with some European economies. The UK has taken their pain much earlier than most in recognition of how badly the economy was previously managed. Luckily there was an election at a key point when financial decisions needed making and the public were willing to take the pain. The US has yet to do that. It's been playing make believe for too long now.

Of late it is the other way round in the US where GDP is normally revised downwards. So now despite the $3 trillion that has been pumped into the world economy since 2008 the broader figures and forecasts suggest, at best, low GDP growth. In a real sense this will turn negative as inflation takes hold and GDP increase will be more than counteracted by increased prices. Real output will turn negative, unless now, we are heading for deflation or stagflation. The Central Banks are rightly terrified of that. June 2011 was always going to be a key month.

Gold and silver, the two Precious metals which really reflect what people think are now surging ahead. I was hoping that May would see a low or pullback, I'm not so sure now. I think we will have to wait until second week of June. Mid June might mark a "long term" low point for gold and silver before a ballistic rise move into 2012.

Why the second week of June? I think by then the full reality of the end of quantitative easing will be realised by many and I expect to see a broad sell off in the stock market . This undoubtedly will catch many large investors unaware and they will be forced to sell off (buying opportunity) in Precious Metals to cover losses elsewhere. If stock doesn't go down then maybe we are heading an even bigger fall later in the year. You can only prop up the markets for so long.

You do wonder why these intelligent financial forecasters and large investors can't see the writing on the wall. It happens every time.

A key point that seems to be constantly re-iterated, and as highlighted in Ciaran Mckenna's article of yesterday, in a report on Ireland was the statement by Peter Nyberg (a Finnish banking expert) who said
"It appears now with hindsight to be almost unbelievable that intelligent professionals in the banking sector appear not to have been aware of the size of the risks they were taking".

This seems to still sum up the approach of many.

Mr Bernanke said everything that needed to be said. If anything, he was perhaps a little to honest with his appraisal. The dollar sank low. Perhaps now after the end of QE, the US and Fed are looking to try and maintain any increase in job numbers through a weak dollar and exports. The weak dollar though is only going to put more pressure on oil and food prices and inflation will feed through off these into the US economy eventually and more importantly the rest of the world (ROTW). So now as long as the dollar is still the reserve currency the ROTW will feel the pain of rising prices before the US before it itself feels it.

The US will then play another card to keep inflation under control (for them) they will put up interest rates. Remember the remit of the Fed is to make life tolerable in the US and the ROTW be damned.

The US scenario painted above will play out into next year. Interest rates will start rising at the end of Q2 2012 and the dollar will see some balancing but going into the close of 2011 the dollar will continue to weaken.

There are already new skeletons coming out of the cupboard . An interesting article in todays Telegraph by Philip Aldrick highlighted how Barclays has taken $12.3 of rotten credit market assets off its balance sheet and into a new Cayman Islands company called Protium.

Greek debt it has been announced is much worse than at first thought. To insure $10 million pounds worth of Greek debt costs $1.3 million. They have about $400 billion dollars worth of debt (160% of GDP). Indeed Credit markets are now getting a 25% return on a two year loan!. Obviously this is unsustainable.

A crisis meeting with EU officials has been set for May 9th and the situation is now so urgent they are trying to bring this forward to May 5th. Next week.

Bloomberg TV interviewee Paul O'Neill, ex-Secretary of the Treasury uses strong words in a desperate plea to get people to realise the gravity of the US situation. When he said

"People who are threatening not to pass the debt ceiling are our version of Al-Qaeda terrorists. They're really putting our whole society at risk" - he refers to Ron Paul trying to round up 50% of the congress vote to stop it happening. See video

He goes on about the current situation where financial tricks are being used to the US financially through May to July as a sop to political decision making that should be made but needs to put off by the politicians. One thing he doesn't explain though that even if the debt ceiling is raised, who is going to buy that debt? Sounds like QE3 in another form as the Fed will have to buy it's won debt.

The list goes on ...... Ireland, Spain, Portugal. June is now a key month and we can only wonder which will be the next trigger for the new banking crisis.

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