  
|
|||
Dealing with QE-Wars and Currency DevaluationsGary Dorsch Whether you live in Cyprus, England, Japan, the United States, or elsewhere, the battle for financial survival is taking on new dimensions. At issue is the steady dilution of the purchasing power of money that is perpetrated by the world’s central banks, and worries about confiscation and taxation of monies by government authorities. Even the giant Multi-Nationals, that stashed trillions of dollars in offshore tax havens, are feeling a bit uneasy about reports that the G-20 plans to crackdown on their money laundering schemes in the future. However, - what’s most urgent right now, is learning how to profit from the QE-Wars and competitive currency devaluations that have become the “New Normal” in today’s marketplace. And as long as governments’ budget deficits continue to spiral out of control, presumably, there’s no end in sight to how much currency that central banks will print, or how much politicians will try to tax. A key question facing investors is - what is the best strategy for staying ahead of the money printing schemes and currency devaluations that are expected to unfold in the year ahead? For many investors, the best way to hedge is by investing in selected stock market index funds, (ETF’s). In several countries, the precious metals market for Gold and Silver are seen as the best way to protect wealth. On Wall Street, the “least loved” stock market rally in history has restored $11-trillion of wealth to the top-10% of the richest Americans. As the cyclical Bull has reached its fourth birthday, on March 10th, to become the eighth longest bull market since 1928, there are many latecomers to the game that are starting to jump on the bandwagon. Many investors are just beginning to realize that the Federal Reserve is empowered with a third mandate, - to artificially inflate the value of the stock market and to ride to the rescue of the stock market Bulls whenever unforeseen developments threaten to trigger a correction. Whereas the FDIC guarantees up to $250,000 of monies that are deposited in US-bank accounts, the Fed acts to protect the wealth of the Ultra-rich in the stock market, 24-hours per day, with a handful of price rigging techniques, although minor bouts of pullbacks in the market are allowed, so as to give the appearance of a so-called free market. Yet even as the Dow Industrials hit record heights, it might require even bigger dosages of money injections from the sugar daddy at the Fed, in order to fuel a full fledged secular Bull market. For the past 4-years, the US-stock market rally has been climbing the proverbial “Wall of Worry,” overcoming numerous obstacles and panic attacks along the way. Most recently, the key driver that’s lifting stock markets higher around the world is the massive flow of liquidity via the infamous Japanese “Yen Carry” trade. The Bank of Japan and the Federal Reserve are telling traders through the media, that they’re poised to print a combined $2-trillion worth of yen and US-dollars, in the year ahead. Expectations of a sharply lower yen exchange rate has already catapulted the Australian Stock Exchange’s top-200 index above the psychological 5,000-level and lifted Germany’s DAX-30 index above the 8,000-level. Still, the average lifetime of a stock market Bull on Wall Street since World War II is roughly 52-months. The current Bull market is 48-months old. It’s important to note that the average age of 52-months is skewed by the performance of giant Mega-Bulls that lasted for 18-years and 24-years respectively. Subtract out the two Mega-Bulls, and the average lifetime of a cyclical Bull is closer to 2-years of age. If history is any guide to the future, this Bull market will start to show a touch of gray, and produce more muted returns and more erratic behavior future in its fifth year of age. However, many investors believe that a third Mega-Bull is in the making, and that this rally has legs that can run for several more years.
Wall Street’s Guardian Angel - the Fed, Stock market Bulls are able to sleep well at night, knowing their wealth is protected by a guardian angel – the Bernanke Fed, which is working every single day and night to guide the stock market along an upward trajectory. The Fed, the White House, and the US Treasury, otherwise known as the “Plunge Protection Team (PPT), have tossed aside “free market” principles, and any notions of moral hazard, and instead have instilled a tyrannical policy of price rigging, through a few unorthodox measures, - namely Quantitative Easing (QE), the Zero Interest Rate Policy (ZIRP), and “Operation Twist,” sprinkled with brainwashing messages, - “Jawboning” that are fed to the media. There’s also a technique known as “Financial Repression,” in which the Fed submerges the yield on the US Treasury’s 10-year note to below the dividend yield that’s paid by the blue-chip companies listed in the S&P-500 index. Today, the dividend yield on the S&P-500 index is 2.05%, which is slightly above the 10-year T-note yield of 1.96%. That helps to make US-companies that increase their dividends look more attractive to the Ultra-wealthy. In December, the Fed super-charged it’s QE-scheme, saying it will pump $85-billion of high octane liquidity into the money markets each month. In turn, a total of $1-trillion of QE injections this year is expected to drive the stock market indexes sharply higher. Jeremy Grantham, an investment strategist who is best known for his bearish call on the US stock market in 2000, is a long-time critic of both Fed chief Ben Bernanke and his predecessor Alan Greenspan. In a series of his regular letters he has blamed them for creating asset bubbles by holding interest rates at artificially low levels. “The Fed is trying to “badger” people into making riskier investments in order to push up equity prices,” Grantham said. “This strategy will be seen as typical of the “Greenspan-Bernanke era.”
The Bank of England is also a Serial Bubble Blower - The Fed is not the only schemer, that’s rigging the stock markets these days. The Bank of England (BoE) is also engaging in QE and Financial Repression. After slashing its overnight base rate to a historic low of 0.50% in February of 2009, the BoE switched its monetary policy from regulating the cost of money to managing the quantity of British pounds sloshing in the London money markets (QE). The BoE launched its QE-scheme with an initial dose of £75-billion in March of 2009, and steadily upped the dosage of the hallucinogenic drug to £375-billion by July of 2012. Since then, the BoE has tried to go cold turkey on QE, but the withdrawal symptoms from the addictive drug is painful. It’s already flashing signals that it wants to resume QE in the months ahead. These high-octane QE-injections combined with “negative” interest rates offered on British Gilts, fueled a spectacular rally that’s lifted the Footsie-250 index to an all-time high of 14,000. The FTSE-250 index, a measure of 250 mid-sized UK-companies, has rocketed +135% above its March of 2009 low. What caught many macro-traders off guard however, was the fact that the FTSE-250’s spectacular price gains were achieved during a time period when the local UK-economy was sputtering and grew by an anemic +3.4-percent. Furthermore, the FTSE-250 index soared +16% above its highs of 2007 even though the size of the UK-economy is still -3.2% smaller than its peak in Q’1 of 2008. In other words, there’s been a big disconnect between the spectacular gains of the local UK-stock market and the anemic growth of the local UK-economy. For this reason, many traders believe the BoE has inflated a stock market bubble that would begin to slowly deflate under its own weight if the BoE decided to kick the QE-addiction, or worse yet, the FTSE-250 index bubble would burst more rapidly if British gilt yields turn sharply higher.
QE-injections buoy London Gold above £1,000 /oz, - The British government has issued £580-billion of new debt since the start of 2009, and the BoE has purchased (ie monetized) nearly two-thirds of it. While Britain’s economy teeters on the edge of a “triple-dip” recession, - between now and 2016, even if Britain’s austerity program is fully implemented, the UK’s national debt is expected to increase to around £1.6-trillion – more than five times what it was at the turn of the century, and 3-times more than in 2008. This enormous debt of £1.6-trillion doesn’t include public-sector pension obligations of another £1.2-trillion, – the bulk of which will be paid, over time, directly from future taxation. As a result, Moody’s stripped Great Britain of its coveted AAA-rating, and lowered its credit profile to AA1. For the first time since 1978, Britain has lost its triple-A rating. And another downgrade could follow, Moody’s added, if it sees “a reduced political commitment to fiscal consolidation.” Signals that the Bank of England could soon resume its QE injections have already knocked the British pound -7% lower against the US$ since the beginning of this year, and the pound has been flirting with the psychological $1.500 level this month. On a trade-weighted basis, the British pound has fallen about -30% since 2008. “Without the fall in the exchange rate that did occur from before the crisis to now, our export industry would not be growing as they are and unemployment would be a good deal higher,” said BoE chief Mervyn King on March 15th. “Sterling is now broadly stable and “at the same level we were after the impact of the financial crisis. The markets have judged that this is the right level for the pound. We’re certainly not looking to push sterling lower,” he said. The London Gold market has been a rock solid defender of the purchasing power of British citizens against the insidious effects of the BoE’s money printing schemes and the devaluation of sterling. In London, the price of Gold has tripled compared with six years ago. That’s an annualized gain of +50-percent. For the past 1-½ years, London Gold has found good support at the psychological £1,000 /oz level. Traders expect the yellow metal to resume its Bull market run, once the BoE resumes its QE injections, which are absolutely necessary in order to finance the bulk of the UK-government’s future supply of gilt offerings. To read the rest of this article, please click on the hyperlink located below: http://www.sirchartsalot.com/article.php?id=175 ### Gary Dorsch 321gold Ltd |
