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Bullard Worried US Is Turning Japanese


St. Louis Fed President James Bullard suggests that the Fed start up the quantitative easing program by buying Treasuries.

St. Louis Fed President James Bullard caused a stir yesterday with the release of his research paper, essentially arguing for more action by the Federal Reserve.

Bullard, who many consider to be an inflation hawk, warned that the US is turning Japanese and suggested that the Fed start up the quantitative easing program by buying Treasuries.

At risk is several years of Japanese-style deflation, Bullard warns, and QE2 is possibly the best tool available to avoid this outcome.

He reiterated his stance this morning on CNBC in addition to saying that he thinks "everyone on the committee is completely on board with the idea that, you know, if things got really bad, we would try to take other action."

Keep in mind what I wrote last week about hawks and doves (See Bernanke Is a Dove, Not a Hawk). And what we have here is a voting member of the FOMC saying that the whole committee is on board with QE2. So don't be too surprised of what happens, especially into the FOMC meeting on August 10.

As for the side effects of this policy and trading opportunities, silver and the silver ETF (SLV) are already making a move this morning. But these metals always provide an entry and the shakeouts are very rough, so don't get too greedy. For the aggressive traders, look at ProShares Ultra Silver (AGQ). Technicians will want to key that support line at $54, so a tight sell stop can be set below that level.

Click to enlarge

Good luck.
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Position in silver, AGQ

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