Investment Contrarians

monetary stimulus

Why the Sell-Off in Gold Bullion Is Based on Faulty Logic

By for Investment Contrarians | Nov 15, 2013

Gold Bullion Is Based on Faulty LogicOver the last few days, gold bullion in U.S. dollars has been under selling pressure yet again. With the price of gold bullion pulling back, one obvious question arises: what’s the appropriate investment strategy at this point?

Many are pointing to talk that the Federal Reserve is about to reduce its monetary stimulus, and this has led some investors to adjust their investment strategy by reducing their gold bullion holdings.

There are several interesting points to make about the argument for this investment strategy. Firstly, members of the Federal Reserve, along with other central bankers around the world, have explicitly stated that inflation is far too low—the opposite of what these investors who are bearish on gold believe.

Considering that the Federal Reserve has all the control in terms of money supply and it is adamant in its goal of increasing inflation, I certainly wouldn’t want to fight the Fed.

So, the media is stating that the reason people are shifting their investment strategy on gold bullion is because the Federal Reserve is about to begin reducing money printing due to the increase in inflation…

Since when does higher inflation lead to lower gold bullion prices? It just doesn’t. If inflation gets out of control, I would rather already own gold bullion than join the crowd scrambling to jump on board again.

If anything, having the Federal Reserve and global central bankers pushing their foot on the money printing accelerator just means a greater increase in the probability of inflation.

Inflation, of course, means higher asset prices. As an investment strategy, when an economy is encountering inflation, the one place … Read More

Monetary Stimulus Leaving Average Americans and Precious Metals Behind

By for Investment Contrarians | Nov 14, 2013

Leaving-Average-Americans 2Why is the average American falling behind in our economy?

Millions of Americans feel as though they are being left behind while the disparity between themselves and the rich continues to grow.

Over the last few years, the Federal Reserve has enacted the most aggressive monetary stimulus program in the central bank’s history. But even with the Fed’s trillions of new dollars thrown into the economy, most Americans do not feel any more financially secure or wealthier than before.

Now, when we look at the stock market, one could easily assume that the monetary stimulus brought on by our central bank is having a positive impact.

Let’s take a look at another country whose central bank has also been pushing a very easy monetary stimulus program for years; of course, I’m talking about the Japanese central bank.

We all know the Japanese economy has been in a slump for multiple decades. If monetary stimulus were the answer to all ills, why is Japan’s economy still weak? Let’s take a closer look at the average Japanese citizen for the answer.

According to a report by Japan’s central bank, 31% of Japanese households have no financial assets—a new record-high. This survey has been conducted since 1963. (Source: Bank of Japan web site, last accessed November 12, 2013.)

How could this be? The central bank in Japan has been pushing a very aggressive monetary stimulus program, which has led to a drop in the value of the country’s currency and an increase in the stock market in Japan of approximately 60% this year.

While monetary stimulus by the central bank did help push … Read More

How to Invest in This Fundamentally Broken Economy

By for Investment Contrarians | Oct 25, 2013

Broken EconomyWell, the latest numbers related to job creation were recently released and to no one’s surprise, they were worse than expected.

For the month of September, job creation totaled 148,000, down from expectations of 180,000. (Source: Bureau of Labor Statistics, October 22, 2013.) While most people are simply writing off the latest data by saying that the U.S. government shutdown was the primary reason for the lack of job creation, I think there’s much more going on behind the scenes than simply a couple of weeks of not going to work.

This lack of job creation extends beyond simply the past few weeks; the trend over the past couple of years has remained far below potential. Even with the Federal Reserve throwing literally trillions of dollars into the U.S. economy for the past few years, there are no signs of life.

However, looking at the total level of job creation is not enough. Two other key figures you should pay attention to in addition to the total level of job creation are wages and hours worked. The Federal Reserve takes these additional metrics into account when trying to develop a picture of the economy.

The average hourly earnings increased by 0.1% in September, slightly below expectations of 0.2% from the previous month. The average hourly workweek did not change at 34.5 hours.

I don’t know about you, but seeing a mere 0.1% increase in my pay would not cause me to run out and spend more money or feel more secure about my financial future.

Before job creation takes place, you will usually notice hours increasing as employers use existing … Read More

Fed’s Still Printing: Markets May Be Celebrating, but Here’s Why I’m Worried

By for Investment Contrarians | Sep 26, 2013

Markets May Be CelebratingIt had been a long time since the Federal Reserve really surprised the markets. That is, before last week’s announcement that the central bank was going to keep its foot on the gas pedal—with the “pedal to the metal,” as the saying goes—leaving monetary stimulus in place.

As you probably know, at the last Federal Open Market Committee (FOMC) meeting, the Federal Reserve announced it would continue buying mortgage-backed securities worth $85.0 billion each month for the foreseeable future. Everyone was expecting some reduction in monetary stimulus; to have no change at all was quite a surprise.

But while the markets celebrated the news with new record highs, the fact that the Federal Reserve feels the need to continue pumping monetary stimulus into the economy actually worries me. Even with the stock markets near their highs, the bank’s interpretation of the current economic situation is certainly not as optimistic as many would’ve believed.

We have seen some data over the past couple months that indicate the pace of job hiring in the U.S. economy is starting to decelerate. At this point, the trend should have been for jobs growth to begin exceeding 200,000 per month. But while the level of job creation is still positive, it’s nowhere near the 200,000 mark, which is a concern.

The Federal Reserve is also worried about the continued drop in the participation rate. A person leaving the workforce is not a sign of economic strength. This is one reason that the Federal Reserve is continuing the monetary stimulus program, to continue enticing companies to expand and hire.

The problem, as I’ve stated in these … Read More

Why the Stock Market Prefers Yellen So Much for New Fed Chief

By for Investment Contrarians | Sep 18, 2013

Stock MarketWith recent news on Federal Reserve Chairman Ben Bernanke’s possible replacements, we’re seeing even more evidence that the stock market gains really are largely dependent on the Fed’s current easy money environment.

The stock market surged out of the gate Monday morning on news that Lawrence Summers, the then-leading candidate to replace Bernanke as the next leader of the central bank, decided to withdraw his name from consideration as new Fed chairman. This was major news for the stock market; Summers was not a favorite among stock market participants, because he was known to be a backer of tapering the monetary stimulus. Of course, this did not sit well with stock market participants, as it meant the easy money would end.

Stocks surged on speculation that the Fed’s Vice Chairman Janet Yellen would now become the leading candidate, since it is expected that Yellen will maintain the current Fed’s gradual approach to easing.

This surge clearly indicates how important the easy money is to the stock market.

Whether the Fed decides to begin to rein in its bond buying when its two-day meeting ends tomorrow has now become somewhat less significant compared to who’s going to take over at the helm. The fears associated with both events may be similar, but it’s the long-term implications of what a new Fed chairman could bring to the table that is now the focus among market participants.

Overall, the long-term implications if Yellen is appointed as the next Fed chairman will likely be a longer extension to the tapering timeline compared to what it might have been under Summers. For the stock market, … Read More