Pento has been incredibly accurate regarding his predictions of central bank moves. Pento noted, “… he (Charles Evans) did not indicate that these new and additional purchases, which will start in January, would be sterilized.”
Here is what Pento had to say: “The mainstream media has it all wrong once again. I noticed that gold and energy, commodities in general, turned around right after Charles Evans, who is the Chicago Fed President, spoke (earlier today). The media pretty much ignored it.”
“They (mainstream media) are crediting this huge rally that we’ve seen today in energy, commodities, and even in the nominal averages, because of a strong ISM Manufacturing Index that came out. It has nothing to do with the fundamental weakness or strength in the global economy.
It has everything to do with the fact that the Fed doubled down on QE3 this morning and unofficially announced QE4….
“(They did this) even when the echoes of QE3 are still reverberating around the room from Bernanke’s mouth.
Let me go into details (for your readers). Chicago Fed President Charles Evans is Bernanke’s right hand man, and the ‘Chief Architect’ of QE3. This was QE3’s plan, to buy $40 billion of mortgage-backed securities every month, until the unemployment rate magically declines.
He (Charles Evans) said that the Fed should continue buying at least $45 billion more of long-term Treasuries, even after Operation Twist ends in January. (Remember), Charles Evans will be a voting member in the FOMC next year. Here is the most salient point, he did not indicate that these new and additional purchases, which will start in January, would be sterilized.
Now, QE3, the $40 billion (each month), is not sterilized, but the $45 billion in Operation Twist is sterilized. By sterilized I mean they are buying long-date Treasuries, and selling debt, paper from the government that’s less than 3 years. That’s sterilized today. But the reason why Evans said that these new purchases would not be sterilized is because they will not.
The truth is the Fed doesn’t have many short-term Treasuries left to sell. Evans said the $45 billion a month should last at least a year. That’s $540 billion worth of what he indicated would be a combination of mortgage-backed securities and Treasuries.
Well, you cannot sterilize $540 billion, in addition to the $480 billion dollars that you are already doing, when the Fed’s balance sheet shows that they are almost out of short-term Treasuries. So this will be an unsterilized, open-ended, double-down version of QE3, and that’s why you are seeing gold and commodities soar.
This is huge news. It is not an official announcement. Bernanke has not sanctioned this move, but your readers should understand that Charles Evans isn’t a nobody. He is the Federal Reserve President from Chicago. He is the architect behind QE3. The Fed did exactly what he spelled out QE3 would be.
He has clearly laid out what he wants QE4 to be already, and this is what I think is going to happen in January, and it will have huge ramifications to (investors) portfolios.”