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,” FederalReserve.gov, 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


Update: Gold a Boon for Speculative Traders

By for Investment Contrarians | Nov 14, 2013

Gold a Boon for Speculative TradersIt’s been over a month since I looked at gold, so perhaps it’s time to review my evaluation on the yellow precious metal. To recall, I didn’t like the metal at $1,800 an ounce, or even after its declines to $1,600 and $1,500. I didn’t even like it at $1,300.

Even when gold rallied from below $1,300 to $1,365 after the Federal Reserve decided to not begin tapering its bond buying at the September Federal Open Market Committee (FOMC) meeting, I refused to jump on the band wagon. It just wasn’t the right time.

The problem, in my view, was a lack of reasons why I should buy. In fact, buying into equities in mid-September would have offered investors returns, while losses mounted in gold.

Now, I keep reading about how China is buying more and more gold. Rumor has it that the country is building a big safe-house in Shanghai that could store up to 2,000 pounds of the shiny metal. Sorry, but I’m still not quite convinced that gold is a buy right now. I’m still not impressed.

China has over $3.0 trillion in cash and needs to do something with it. For China, buying U.S. Treasury bonds may not be the best idea, given that the U.S. government appears to be a mess and debt levels just keep rising. So that just leaves gold—luckily, the Chinese love the metal.

Tensions in the Middle East appear to be quiet, but you never know when a conflict could arise, especially with Syria being accused of playing the rest of the world with its agreement to allow the destruction of … 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


China Leads Campaign to Replace the Dollar as Reserve Currency

By for Investment Contrarians | Oct 17, 2013

China Leads CampaignA very interesting item appeared through the official Chinese news agency, Xinhua, in which the Chinese government is effectively calling for the end of the U.S. dollar as the world’s reserve currency, stating that the world should “…start considering building a de-Americanized world.” (Source: “Commentary: U.S. fiscal failure warrants a de-Americanized world,” Xinhua web site, October 13, 2013.)

In my view, the commentary was intended to voice the opinion of Chinese leaders that they are fed up with the political fighting in Washington, leaving China’s trillions of dollars in U.S. debt in the hands of ineffective leaders.

With the U.S. dollar as the reserve currency, there is very little recourse for many nations around the world. You have to remember that for countries to make large trades on an international scale, a reserve currency is required for transactions. Increasingly, China is looking to move away from the U.S. dollar as reserve currency to lessen its reliance on our nation. This is part of the reason why China’s leaders are looking to move away from an export-led economy and toward a more domestic-oriented economy.

However, much of the commentary was geared towards politics, rather than purely economics; one example: the U.S. is “meddling in the business of other countries,” a not-too-subtle hint that we should stay out of China’s affairs.

They are right in one aspect: we have abused our power as the reserve currency and have run up a massive amount of U.S. debt. At some point, countries around the world that depend on the U.S. dollar as the reserve currency as well as trillions of dollars in invested U.S. … Read More