Quantitative Easing 2.0 ending?

Some of the Fed governors turning increasingly hawkish is a repeat of 2010 when the Fed threatened "exit strategies" since the economy was "recovering."  How did that recovery turn out?

If the Fed were to end QE2 (which I believe they should, but it's entirely too late), who will buy our Treasuries?  China?  Japan?  the UK (even though they are more broke and desperate than the US is)?  The ECB?  The answer is:  NOBODY.

Interest rates would soar, bankrupting America overnight, as well as much of the developed world.

So yes, the Fed will jawbone about removing QE, and they may even let it end for a bit (despite surreptitious Permanent Open Market Operations (POMO) operations under the surface which is QE anyway), but there is no way the ending of QE will be permanent.  Markets will plunge, so they will have to keep running the printing press.

We may see a temporary correction in all assets--including precious metals--but that sector will rebound the quickest and most vigorously as it did in 2008 after Lehman collapsed.  And if they renew QE, precious metals will only go up--with little or no correction.

Bubbles occur due to lopsided positions betting the wrong way.  How many Americans do you guys know who own gold?  Based on anecdotal internet searches and my own ad hoc surveys, around 3% of Americans own gold.  That is not a backdrop for a bubble.  A bubble about to collapse occurs when more than 50% of the population (or institutional investor) owns an asset, when they are sure the asset "can only go up" (see internet stocks in 1999 and real estate in the sun belt in 2005).

As long as ownership of precious metals is in the single digits, there is just too much buying power for a bubble to form, much less collapse.

A buyer of physical silver with $100 million could bankrupt the COMEX silver pits tomorrow.  To give you scale, the market capitalization of Apple shares alone is $312 billion.  It doesn't take much buying pressure to move the needle on silver spot prices or the mining shares.

See disclaimers in the side bar.

Disclosure:  long precious metals mining shares.