One couldn’t imagine any better Christmas gift for hard assets and stocks than Ben Bernanke’s surprise introduction of QE4 right on the heels of QE3. Call the duo QE7. “QE7” promises to expand the monetary base far faster than the markets had been discounting [which is great for gold] and also raises the floor under stocks. I suspect we’ll close 2012 with a run at the highs, and possibly climb just short of 1,600 on the S&P 500 sometime in Q1. As for Treasury bonds, well, could this spell the end of the bond market? [Let’s look at the ramifications of QE4 more closely.] Words: 516
So writes John Thomas (www.madhedgefundtrader.com/) in edited excerpts from the original article* entitled The Fed Christmas Present for Gold Bulls.
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Thomas goes on to write, in part:
Federal Reserve Chairman, Ben Bernanke, delivered a real blockbuster last week in the aftermath of the final Open Market Committee meeting of 2012 – it looks like he really wants to end the year with a bang. Not only will the Fed continue with $40 billion-a-month worth of mortgage-backed securities to supercharge the housing market, it will also conduct an additional $45 billion-a-month of long-term Treasury bonds. The central bank will continue to peg the Federal funds rate at 0%-0.25% until mid 2015.
Most importantly, it will target a specific unemployment rate of 6.5%, 1.2% lower than the last rate, and maintain ultra low rates until then. This is an unprecedented, bold, and historic move. No one can remember the Fed ever targeting employment. The gloves are off. While QE3 is now only two months old, and financial markets have yet to feel its full impact, it has in effect, launched QE4 right on top of it. Call the duo QE7.
A Gift for Hard Asset Investors – Particularly of Gold
You couldn’t imagine any better Christmas gift for hard assets. Gold…[should do particularly well] because QE7 promises to expand the monetary base far faster than the markets had been discounting. There is no better correlation than the one between a growing monetary base and rising prices for the barbarous relic.
The rest of the hard asset space…[should do] just as well…Combine the Fed action with the possible turnaround in China underway, and you could see a sustainable move up in all hard assets, well into next year.
A Gift for Investors in Equities – S&P 500 to 1600?
Ben Bernanke’s surprise move also raises the floor under stocks. The robust economic data reports we have witnessed in recent months have been given the juice to continue….I suspect we’ll close 2012 with a run at the highs, and possibly climb just short of 1,600 on the S&P 500 sometime in Q1.
Treasury bonds are a bit of a quandary. You would think that $45 billion a month of fresh buying at the long end would send prices soaring….[but] the market seems to be focusing on the longer-term inflationary impact of the Fed move, rather than the quantity of paper the government is willing to soak up. It certainly makes my prediction of a 3% GDP growth rate for Q4 much more realistic. Could this spell the end of the bond market? Only time will tell….
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QE3 looks like a desperate act to feed money to large banks, offload MBS toxic waste from their balance sheets, devalue the dollar against houses, commodities, and other currencies and create significant collateral damage in the form of consumer price inflation according to a number of respected economists and critical thinkers on the subject of QE3. [Let’s take a look at what they have to say.] Words: 1661
With the pop from the USFed’s latest attempt at financial shock and awe already seeping from lackluster markets, and the teleprompter news networks losing steam over their promotion of the same, it is time to take a look back at the decisions made on 9/13/2012 and set the record straight on some things.
The Fed professes that QE 3 or as I call it, QE Infinity (QEI), will create jobs but I am not sure how they can expect anybody to buy their rationale. As we know, QE 1 and QE 2 did very little in the way of creating jobs. Might the Fed realize that QE Infinity could actually be counter-productive to economic growth?
The choice facing the leaders of the world’s largest economies is a simple one: Either they engage in massive money printing, or they let the world slip into another great depression. This article examines why they have no choice but to print money, something which will have significant consequences for everyone. Words: 560