Last Thursday, the Federal Reserve did exactly what we expected it would: announce QE3. It will “print” $40 billion a month out of thin air and use the funds to buy mortgage backed securities (MBS).


The goal is to reduce the supply of these types of bonds, thereby making them more valuable.

This SHOULD cause their interest rate to go lower, which would theoretically cause the cost of financing a new mortgage to go lower because the borrower would have to pay less interest.

This SUPPOSEDLY will cause more people to buy homes because they pay less interest.


In order for this to be effective it would have to be true that hundreds of thousands – if not millions – of potential home buyers have been holding off buying because interest rates have been too… high.

Yep. For the Fed’s plan to work there has to be a lot of people out there (as recently as last week) saying, “I’m not buying a home yet because, at 3.70%, mortgage rates are just too dang high!”

Do you know anyone like that?

Me neither.


That’s because they don’t exist.

Let me be crystal clear about this: the Fed won’t reach its goal, which is to cause a spike in housing activity that leads to higher home values and more home building, thereby increasing employment.

But it will have an effect… That is, you and I get the pleasure of paying more for stuff.

Gas, food, education, healthcare… all the basics will move up in price as the Fed steals more of our value right out of our pockets. Just brilliant!

The good news is this should be temporary.

For some time we’ve been calling for a spike in the price of gold and other commodities in response to an anticipated QE3.

We’ve got it.

The move higher has been dramatic and, in our view, overdone. That makes now the time to take some chips (or nuggets) off the table as we await the inevitable downdraft in the markets. People WILL realize that the latest round of QE will have the same (lack of) effect as the previous measures.

It is debt deleveraging folks… and slower and lower demand.

No interest rate or bond buying policy is going to change that.

Think about it. When was the last time you looked at what the Fed was doing before you bought a house, a car or an iPad?


P.S. Ultimately, there is ONE force that the Fed is powerless to stop. This one force is driving the slowdown in spending. This one force will lead us straight into the icy grip of deflation.



Ahead of the Curve with Adam O’Dell

What QE3 News Meant for Gold and the U.S. Dollar

Just as the Fed’s announcement of QE3 came as no surprise to us, we’re also not mystified by the subsequent reactions of gold and the U.S. dollar.



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Rodney Johnson
Rodney works closely with Harry to study the purchasing power of people as they move through predictable stages of life, how that purchasing power drives our economy and how readers can use this information to invest successfully in the markets. Each month Rodney Johnson works with Harry Dent to uncover the next profitable investment based on demographic and cyclical trends in their flagship newsletter Boom & Bust. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. Along with Boom & Bust, Rodney is also the executive editor of our new service, Fortune Hunter and our Dent Cornerstone Portfolio.