Investment Contrarians


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How to Insure Your Portfolio as Fed Second Guesses Its Monetary Policy

By for Investment Contrarians | Dec 5, 2013

Fed Second Guesses Its Monetary PolicyOne of the most interesting ideas that came out of the last Federal Reserve meeting at the end of October is a serious issue for everyone, including the Federal Reserve and the eventual impact of monetary policy. And that idea is that slow productivity growth might actually be the new norm. (Source: “Minutes of the Federal Open Market Committee,”, November 20, 2013.)

Since the Great Recession, worker productivity has been running at roughly half the rate that the U.S. experienced over the 25 years prior. The problem is that potential gross domestic product (GDP) growth comes from a combination of productivity and the labor force.

If productivity stalls and the Federal Reserve continues with its monetary policy, at some point, this excess cash will begin to seep into the economy and cause inflation.

The reason we aren’t seeing inflation in the official data despite record levels of monetary policy is that the velocity of money has been low. This basically means that money is sitting in bank reserves or is being funneled into assets, such as stocks, instead of being channeled into the actual U.S. economy. There is asset inflation, but the official measures don’t track items like the stock market.

However, at some point, this begins to shift, especially when worker productivity remains low. The last time productivity hit such low levels was during the 1970s, and we all know what happened to the U.S. economy during that time.

Clearly, the monetary policy program run by the Federal Reserve is not having a positive impact on the real economy, as unemployment remains stubbornly high.

While the Federal Reserve … Read More

With New Fed Chair Unlikely to Taper, How Does Your Portfolio Profit?

By for Investment Contrarians | Nov 18, 2013

How Does Your Portfolio ProfitWell, Yellen has shown her cards; we now know the hand she’s playing. The Federal Reserve will stay status quo. In testimony relating to her nomination and expected approval as the next Chair of the Federal Reserve, Yellen didn’t hold back, stating the low interest-rate environment allows the central bank to employ its loose monetary policy to drive the economy and not fear inflation.

As Yellen stated, “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.” (Source: Bull, A. and Spicer, J., “Yellen says stronger job growth a Fed imperative,” Reuters, November 12, 2013.)

Sounds just like good ol’ Ben Bernanke, doesn’t she? But then that’s what everyone expected from Yellen, who is known as a near-replica of Bernanke and his views towards the economy and the use of monetary policy.

Look, folks, the easy money from the Federal Reserve will likely continue for the foreseeable future. If Bernanke doesn’t decide to begin tapering in his last Federal Reserve meeting in December, it will be up to Yellen to bear this burden, and it appears she may drag it out. Perhaps Bernanke was hoping to begin the tapering process before the end of his second term, but due to a weak jobs picture, it’s not quite an option.

If I was a betting man, I’d put my money on Yellen maybe holding off until later in the first quarter of 2014 to begin tapering. Now, she may begin with a small amount in January, but that all depends on the jobs market in November and December, as she … Read More

BlackRock CEO Reports QE Causing Bubbles in Markets

By for Investment Contrarians | Nov 1, 2013

Bubbles Forming in MarketsAs most readers know, I have been calling for a reduction in the Federal Reserve’s quantitative easing (QE) program for some time. My worry has been that the current level of quantitative easing is not doing much to help Main Street, and it is building potentially dangerous risks to our economy over the long term.

I’m worried about the future of this country, and yes, even my investments. I don’t want my hard-earned wealth to disappear due to mistakes made by the Federal Reserve in continuing to pump quantitative easing.

And I’m obviously not alone in this sentiment, as recently the CEO of BlackRock, Inc. (NYSE/BLK), Laurence Fink, stated that the Federal Reserve’s current quantitative easing policy is creating bubbles in various markets. (Source: Bloomberg, October 29, 2013.)

Fink’s opinion that the Federal Reserve should begin tapering quantitative easing immediately comes from the long-term viewpoint of the overall economy and the damage that is being done. Even though money managers like Fink might benefit from quantitative easing over the short term from the boost in asset prices, if bubbles get bigger, the damage over the long term could be extremely serious.

This has been my viewpoint for some time. Sure, it’s great that the market has gone up recently, but if it’s not sustainable, what’s the point?

Much like real estate a decade ago, we all enjoyed the party on the way up, but the hangover has taken years to work off.

Because the Federal Reserve has been so aggressive in its quantitative easing policy, it’s not just the stock market that is going up. Investors who are desperate for … Read More

What the Wealthy Are Doing to Beat Inflation

By for Investment Contrarians | Oct 7, 2013

Beat InflationWith practically every central bank around the world having the throttle fully open when it comes to monetary policy, investors with extra cash just lying around need to do something with it. While you could put this cash in a government bond or simply keep it in cash, these options aren’t going to help you beat the rate of inflation. Instead, investors should take a cue from the superrich and consider an investment strategy that includes hard assets.

As you may already know, an investment strategy that comprises hard assets includes traditional stores of wealth (such as gold and silver) and commodities (such as oil), as well as artwork and even cars.

While I advocate the traditional investment strategy of becoming a part owner in companies through equities, there are growing signs that even the superrich are becoming increasingly worried about having cash sitting idle and are looking at hard assets as part of their portfolio.

Just recently, a 1963 Ferrari “250 GTO” sold for $52.0 million! I like a nice car as much the next guy, but $52.0 million is a lot for one vehicle.

Obviously, the person buying it is not using it just to go grocery shopping; rather, it’s likely that the new owner is incorporating this item as part of their investment strategy to include hard assets (in this case, collectible cars).

To show you just how strong the market is for alternative hard assets by the extremely wealthy, a similar Ferrari 250 GTO sold last year for $35.0 million, which means this year’s sale is a 49% increase in price.

Of course, price appreciation in … Read More

The Biggest Precious Metal Winner This Year and Why Its Trend Upward Will Continue

By for Investment Contrarians | Sep 24, 2013

Precious Metal WinnerWith the recent shock of the latest Federal Reserve meeting now beginning to subside, the implications can now be extrapolated. By holding its foot on the accelerator, the Federal Reserve is opening the door to further price appreciation in many asset classes, including precious metals.

One of the precious metals I like is the little-mentioned palladium. While many of the precious metals covered by the mainstream (i.e. gold and silver) have been under pressure all year, palladium is actually positive for the year. Because so much of palladium is used for industrial purposes, the negative investor sentiment seen with other precious metals did not have as much of an impact on palladium.

The one thing you have to remember is that the precious metals that have a lower level of industrial use, like gold and silver, are susceptible to greater swings from investor sentiment (just look at last Wednesday’s $60.00 gold spike and the subsequent $35.00 decline Friday), because the industrial purchasers are not there to support them. In sum, investor sentiment can overtake the price of these precious metals far beyond fair market value.

However, the inaction by the Federal Reserve is positive for precious metals like palladium for several reasons. One especially noteworthy reason is that this move will boost the automotive industry. To keep the easy money flowing, the Fed will also keep interest rates artificially low, which will, at least over the short term, boost sectors that rely on cheap financing to draw in more consumers. As you may or may not know, car sales are booming in America. Plus, we’re now seeing European car demand … Read More