The Fed May Fire Multiple Bazooka Rounds: Housing Bubble 2.0 Ahead?

Two decades ago, Dana Carvey got laughs by imitating President George H. W. Bush and saying:  “Wouldn’t be prudent”.  Those were “prudent” times- the Perot balanced budget movement, the recurrent tax rises to deal with budget deficits (not that I favor tax increases) and the like- but the point was made to the public.  If it wanted bennie’s from the Gov’t, there was a cost.  With the inflation of the 1965-1982 (and beyond) era fresh in people’s minds, the answer at first was:  read our lips, we’ll accept some new taxes. 

Those prudent times were followed by the public decision that it would forgo governmental largesse in favor of… no new taxes.  Thus, in the glow of the end of the Cold War, the investment boom of the second half of the ’90s was born.

What has happened now?

Double double bubble?  First, Internet Bubble 2.0 in 2011-12 = the first “double bubble”.  Will we go double on double bubbles?

Could be.

My guess that the Fed would try to stand pat until after November 6 was obviously not just way off, it was waaaaay off.  Is an explosion in risk-on assets coming that will make Steve Jobs’ threat of thermonuclear war against Android look like an attack with a squirt gun?

Mitt Romney said something intelligent:

“The president’s saying the economy’s making progress, coming back,” Romney said in an interview with ABC News. “Bernanke’s saying, ‘No, it’s not. I’ve got to print more money.” He added that “I think printing more money, at this point, comes at a higher cost than the benefit it’s going to create.”

Bingo. 

Said costs look likely to come in the obvious places, the fuel tanks and supermarket aisles. 

Commodities, and commodity stocks, were among the big winners from QE 1 and QE 2.  This time will be different? 

Numerous price records for the metals could be set; Brent crude in euro terms has already recently hit an all-time record.  How far will WTI oil follow in USD terms? 

A simple way of front-running the daily Presidential election polls may be to check out the AAA Fuel Gauge report each morning.  It ultimately could be that simple.   Which will rise faster:  stocks, or gasoline/food prices?  In those sorts of ratios, the next president may be decided.

Last year, I inveighed against Sprott Physical Silver Trust (PSLV) as an investment choice because of its massive premium over silver, which itself looked likely to need a big rest after its moonshot toward $50/ounce.  Rest time over, methinks!  Today I bought PSLV at a modest premium to NAV.  First target for silver bullion prices (no time frame):  $40, then last year’s high near $50, then $100.  Gold:  much higher, perhaps even rising a bit faster than silver while global economic activity remains subdued, but the thing about recessions is that they tend to end, and the “stimulus” from central banks tends not to end, or at least not to end soon enough.

I did not think in 2009 that within a mere two years we would start seeing a flood of wildly overpriced Internet IPOs.  (These of course culminated in FB this spring.)  This was Internet Bubble 2.0.

Today’s sea change in Fed policy means that suddenly I’m getting ready for Housing Bubble 2.0.  Heavens forbid, could it really occur?  If so, would it be centered in the “sand states” again?

Inflation nation, and speculation nation, look to be back; the Fed is potentially going where no major modern central bank has ever gone.  No doubt all the members of the FOMC mean well, but they are human, and they know they are already in uncharted waters. 

It’s time, and past time, for the elected leadership in Washington to reclaim policy control from a central bank that simply lacks enough authority to achieve the policy goals it would like to achieve, try though it might as hard as it can and with only the best intentions.

As Hillary Clinton might have stated, it takes a government.