Investment Contrarians

QE3


Why the Fed Chairman Would Make a Bad Baseball Player

By for Investment Contrarians | Aug 13, 2013

stock-market2If Federal Reserve Chairman Ben Bernanke were a baseball player, I doubt he would be very good. He may be able to drift around the minor leagues, but clearly, he’s not “big league” material. I surely wouldn’t have him as a manager or bench coach either.

As some of you know, I love the game of baseball; hey, it’s America’s favorite pastime after all. Yet there are more similarities between baseball and the stock market than you would think.

In my previous commentaries, I discussed the concept of adopting a “small ball” strategy in the stock market—that is, going for strong companies and consistency rather than betting the farm on a penny stock and hoping to hit it out of the ball park.

So when I was sitting there the other day watching the Red Sox play, it dawned on me that Bernanke is like a baseball player who just can’t seem to win those big games.

Let me explain.

Bernanke is like the lead-off hitter. Think of his QE1 strategy as a base hit. Better yet, he gets hit by a pitch and gingerly trots to first base. The fans go wild. (Of course, the fans represent the stock market.) They get excited and clap in a frenzied state.

But then the second batter strikes out. Call this the gross domestic product (GDP) growth.

The third batter strikes out looking. This is the jobs market.

Now, with two outs, comes the clean-up hitter, and the fans go nuts; Bernanke is jumping up and down, leading off at first base.

Unfortunately, there’s another out (call this the mounting national debt), … Read More


What a Great Strategy: Need Money? Print More Money

By for Investment Contrarians | Dec 14, 2012

Print More MoneyFederal Reserve Chairman Ben Bernanke has spoken, and to no one’s surprise, the printing of money in America will continue and intensify under the soon-to-be newly launched “Quantitative Easing 4” program, or “QE4.” So now we have had several Federal Reserve programs to keep the flow of money going, and now it looks like there will be more money printing.

Under this aggressive money printing strategy, the Federal Reserve will pursue a more aggressive stimulus strategy in September that will involve the additional monthly buying of $45.0 billion in longer-term treasuries on top of the existing $40.0 billion monthly buying of mortgage-backed bonds under QE3. (Source: Press release, Federal Reserve, December 12, 2012.) The concern is that the additional buying of bonds will add another trillion dollars to the Federal Reserve’s balance sheet in 2013, driving the amount up to $4.0 trillion and keeping the money-printing machine going.

While the aggressive move by the Federal Reserve is needed to make sure the U.S. economic recovery doesn’t falter, many are concerned that the easy money will drive inflation higher. Of course, this has yet to happen, as consumers appear more worried about paying down debt levels than spending. The Federal Reserve suggests it would keep interest rates near zero as long as the unemployment rate hovers above 6.5% and inflation remains manageable.

The market view on the Federal Reserve appears to be unfavorable, based on the initial reaction following the announcement of QE4. Based on the Federal Reserve’s assessment, there’s concern that the U.S. jobs picture and economy may be worse than we expect. “Although the unemployment rate has declined somewhat … Read More


Why Printing Money Is So Easy for the Fed

By for Investment Contrarians | Dec 12, 2012

Printing Money Is So Easy for the FedThe Federal Reserve is busy looking at what to do next to try to keep the economic renewal on track, as the central bank meets for the last time this year. The Fed also understands its impact will be hindered by the ongoing battle in Congress regarding the pending fiscal cliff.

The Federal Reserve is speculated to continue its third quantitative easing (QE3) program of buying mortgage bonds each month. The effect will see the Fed increase its holdings of mortgage bonds to nearly $4.0 trillion, according to a Bloomberg survey. (Source: “Fed Seen Pumping Up Assets to $4 Trillion in New Buying,” Yahoo! Finance via Bloomberg, December 11, 2012.)

The bond buying has helped to ease financing rates and drive the housing market higher.

The Fed has spent $40.0 billion a month to buy mortgage-backed securities and, in theory, lower the financing rates. The yield on the 10-year Treasury stands at 1.6% versus 1.8% prior to the establishment of QE3—so it’s working.

For the Fed, as the QE3 works its way through the system, job creation is expected to be a major benefactor.

The Federal Reserve recognizes that the jobs market continues to be problematic and needs to be addressed, despite the unemployment rate falling to 7.7% in November. There are still over 21 million Americans looking for work.

To date, the super-low interest rates at between zero and a quarter of a percent have helped to prevent the country from falling into the abyss. If not for the low rates, the carrying cost of the $16.0 trillion in national debt would be suffocating and making the situation worse, … Read More


Gold Bullion Forecast for 2013

By for Investment Contrarians | Nov 26, 2012

Gold Bullion Forecast for 2013Gold bullion has had a fairly volatile year in 2012. At the end of 2011, gold bullion sold off sharply, ending December at a weak point. A lot of this, I believe, was a result of hedge funds being forced to liquidate their positions. Investors in gold bullion should be aware of the flow of funds from institutional investors. Because of the huge amount of capital that institutions have, they can certainly have an outsized impact on any market, not just gold bullion.

Once a fund has liquidated its position, the selling ends and the underlying fundamentals take over. For 2012, we’ve seen further price appreciation for gold bullion beginning in August on anticipation for accelerated monetary policy stimulus (more money printing) from the Federal Reserve.

That is exactly what we got from the Federal Reserve, a very aggressive monetary policy initiative that has no end date. This type of monetary policy action is unprecedented for the Federal Reserve. As is so often the case, investors bought on the rumor and sold on the fact. Following the September announcement for the new monetary policy initiative, a third round of quantitative easing (QE3), gold bullion sold off with the rest of the market.

To be honest, this is to be expected, considering the large move in gold bullion. Nothing moves up in a straight line. Once the markets tested the $1,800 level, considering gold bullion moved up from approximately $1,550, some profit-taking was to be expected. The key question for me was: at what point would investors step back into the gold bullion market?

Gold-Spot Price Chart

Chart courtesy of www.StockCharts.com

This one-year chart … Read More


Dear Mr. President: Now It’s Time to Deliver on Your Promises

By for Investment Contrarians | Nov 7, 2012

Time to Deliver on Your PromisesBy the time you are reading this, either Barack Obama or Mitt Romney will have won the race to be the 45th President of the United States.

Yet I will remind the winner that there’s not much time to rejoice in the victory, as there’s plenty of work ahead, which will dictate the direction of America over the next four years in relation to debt, job creation, economic growth, and foreign policy.

Whoever has won, they need to work on job creation at a much stronger rate than the current pace. All those promises that were made during the election campaign must now be acted upon. We need to create strong job creation and sustained jobs growth, while lowering the unemployment rate. The Federal Reserve is cautious about job creation into 2013. Obama and Romney have different strategies for lowering the unemployment rate and increasing job creation. But the reality is that unless Americans are put back to work, the economic recovery will likely stall and add to a possible financial crisis.

The most immediate concern for the next president will be what to do about the pending fiscal cliff on January 1, 2013, which calls for $607.0 billion in automatic budget cuts to avert a financial crisis. The Congressional Budget Office (CBO) recently warned that the U.S. economy could contract in 2013 if the spending cuts are allowed, which would impact job creation. (Source: Congressional Budget Office, last accessed November 6, 2012.) I expect the same.

At a round table meeting of the Group of Twenty Finance Ministers and Central Bank Governors (G-20), there was talk of the U.S. … Read More