Tag Archives: quantitative easing

Every year or two we update this report, which lays out the investment thesis for gold. Here is this year's version.

Silver is touched upon only as necessary; as a separate report of equal scope is required for that precious metal.

Gold is one of the few investments that every investor should have in their portfolio. We are now at the dangerous end-game period of a very bold but very reckless & disappointing experiment with the world's fiat (unbacked) currencies. If this experiment fails — and we observe it's in the process of failing — gold will provide one of the best forms of wealth insurance. But like all insurance products, it only works if you buy it before you need to rely on it.

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Emotions are running high for the investment community in the wake of recent market volatility. Up until August, we had been in the third longest period in market history without a 10% correction. Since then, stock indices sold off hard, only to bounce once again over the past two weeks of trading.

And certainly the truth is….No one knows. Especially in today’s world where global central banks can concoct further QE/monetary schemes at the drop of a hat.  Let’s face it, at this point the global central banks are all in. In fact, beyond all in. Without question, the US Fed knows that if equities fall, they lose the high end consumer. (Wal-Mart shoppers have already long been lost) 

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The remarkable success of grandiose pronouncements, money-printing programs and serial expansions of credit raises a key question: how many more “saves” can the central bank bazookas fire that will have the desired effects of maintaining perceptions of central bank omnipotence and pushing global markets ever higher?

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Remember in the early part of the last decade, long before he was appointed the Chairman of the Federal Reserve, Ben Bernanke penned an article that caught widespread public attention entitled, “Deflation: It Can’t Happen Here” ?

Bernanke was referring to the deflationary pressures Japan had been dealing with for more than a decade. In the article, Bernanke laid out a game plan for how the Fed would respond if the US ever faced deflationary pressures. His miracle antidote for battling deflation? Printing money. Lots of it.

Little did anyone know at the time that this game plan would become the Fed’s exact response to the credit market crisis and deflationary impulse that erupted in 2008 and 2009.

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In early September, I made the case for a rising U.S. dollar. Since then the dollar has continued its advance, and is now breaking out of a downtrend stretching back to 2005—and by some accounts, to 1985.

So what does this mean for the global economy?

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John Hussman is highly respected for his prodigious use of data and adherence to what it tells him about the state of the financial markets. His regular weekly market commentary is widely regarded as one of the best-researched, best-articulated publications available to money managers.

John's public appearances are rare, so we're especially grateful he made time to speak with us yesterday about the precarious state in which he sees global markets. Based on historical norms and averages, he calculates that the ZIRP and QE policies of the Fed and other world central banks have led to an overvaluation in the stock market where prices are 2 times higher than they should be.

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At the exponential pace at which the Fed is increasing the money supply, and knowing the huge challenges the Fed – and most other world central banks  – face in trying to stop or even slow down their money printing, the potential for a disruptive global inflationary period is very real.

So what exactly is quantitative easing? 

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