Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

2011: Year of the Yellow Brick Road

Interest-Rates / US Interest Rates Jan 06, 2011 - 11:59 AM GMT

By: Axel_Merk

Interest-Rates

The Wizard of Oz would be proud of our policy makers: perception may be reality when it comes to investor confidence, even if we live in a fairy tale. However, investors that can afford to build a yellow brick road paved with gold may outshine those who build theirs with magic.


Let's enjoy the dream for a moment: the Federal Reserve (Fed) has sprinkled money on the economy, Congress has kept taxes low and we see signs of a recovery. A recovery driven by consumers with more disposable income. Where do they get it from? The reduced payroll tax? Maybe, but how about all the money consumers have at their disposal now that they have stopped paying their mortgage? What a wonderful life this must be! Because the Fed doesn't quite believe in the recovery, we believe QE2 will run it's course - Fed Chairman Bernanke has repeatedly stated that one of the grave policy mistakes during the Great Depression was that monetary policy was tightened too early. He appears committed to not letting history repeat itself; investors may want to trust him on that, as well as his commitment to push inflation higher. Ultimately, the Fed would like to engineer higher home prices so that consumers are no longer "under water." The challenge the Fed has, of course, is that while it can create asset inflation, the Fed has a difficult time influencing which assets inflate. Having said that, the Fed has at least some success: easy money has pushed at some company’s valuations higher, just look at Facebook, now valued at $50 billion, which may bode well for Palo Alto real estate. This is the Fed's contribution to the wealth gap: those with assets may do well under Bernanke's leadership, but don't expect a boom in underprivileged neighborhoods, unless someone convinces Facebook to relocate there.

Congress in the meantime will do what it does best: talk. There will be lots of it. Specifically, the debt ceiling may be the talk of the day, month and year. The new spirit amongst Republicans is to stop wasteful spending. And what better opportunity but to raise that point to appease voters this year. Granted, talk is cheaper than spending and indeed some spending projects may be halted. But let's remember that the grand compromise on tax reform did not require anyone to make tough choices. Washington wizardry is in full swing, make no mistake about it. After all this talk, we believe odds are extremely low that policy makers will wake up from the dreamworld and engage in urgently necessary, real reform required to stop the US from going down the path of Greece. While we are not there now and don't need to go down this route, all it would require is for policy makers to close their eyes, click their heels three times and say "I want to wake up; I want to wake up; I want to wake up!"

Don't look for the Fed or Congress to disturb the dream. The bond market may need to be called upon to rattle us. As the first signs, investors my interpret falling bond prices as a sign of economic recovery; but as the selloff may continue, the chief Wizards may be called upon to do something about those mean speculators that dare to wake us up from our dreamworld. Think volatility, think falling dollar. Think you wish your yellow brick road was paved in gold. But if enough believe in the dream, we might be able to keep on dreaming. Unfortunately, little has worked out the way our policy makers have wanted, so at the very least, investors my want to consider taking into account the possibility that we have woken up from this fairy tale.

It turns out that Bernanke's dream has real implications for the rest of the word. Asia is waking up with a hangover called inflation. Much of Asia has been importing U.S. monetary policy; given that the U.S. is curing its disease with the virus that created the disease in the first place (cheap credit), Asia has been catching a cold. Aware that a cold can turn into pneumonia, Asia has been struggling to neutralize the disease. In the spirit of keeping the dream alive, China is getting creative: deploying its vast reserves to invest in Greece; the latest proposal is to buy Spanish bonds. The beauty about this latest initiative - for China anyway - is that Greece has been, and Spain may be willing to sell important infrastructure that allows access to the respective ports. However, as inflation is picking up steam, more earnest measures may need to be taken, most notably a further appreciation of Asian currencies.

Indeed, while the US is in denial about inflation - after all wages are not budging -, the rest of the world has started to tighten monetary policy - that includes the eurozone where hundreds of billion in euros have been mopped up. This increasing interest rate differential has contributed to a rather weak U.S. dollar, only masked by a wobbling euro.

Talking about the eurozone, the bond vigilantes have already arrived to wake up European governments. It may only be a matter of time before the U.S. gets it's wakeup call. We have seen the drama unfold in Europe - the U.S. promises to be no less "entertaining." In our assessment, the question is not whether there will be bailouts for some states, but what strings will be attached to them. Let's also remember that the U.S is more vulnerable because of its current account deficit; the treasury market may be at risk of following the municipal bond market's decline. The U.S. situation particularly concerns us since Bernanke has shown a greater willingness to use the printing press to touch up problems than the European Central Bank (ECB).

In the meantime, Europe has wiped its eyes and is now wide awake and alert. In Europe, this doesn't translate to swift action, but may well lead to a process in which weaker states cede control of their budgets in return for aid. While not a perfect process, when coupled with expected restraint from the ECB, this could well turn the euro into a champ this year. A widely disliked investment such as the euro may hide a lot of value.

Overall, we see the world as increasingly unstable. U.S. policies are likely to rattle the rest of the world, while not fixing domestic issues. By all means, the Fed has to worry about the U.S., and cannot be held responsible for all the ills of the world, but we happen to believe that a more prudent Fed policy would also be in the interest of the U.S.

As far as gold is concerned, the continued concerns over sovereign solvency - not the eurozone in particular, but globally, combined with the U.S drive to achieve growth at any cost, make the yellow metal worth considering. What's in your vault? Is your yellow brick road made of dreams or gold? Just because policy makers are dreaming, doesn't mean investors need to.

Currencies and commodities may well dominate headlines yet again. If nothing else, they will be in the news because of the ongoing volatility we are likely to see in the market. We also expect continued active participation by policy makers. This may bode poorly for traditional portfolio diversification, as asset classes may move in tandem – both up and down – when trillions are thrown at the markets.

Ensure you sign up for our newsletter to stay informed as these dynamics unfold. We manage the Merk Absolute Return Currency Fund, the Merk Asian Currency Fund, and the Merk Hard Currency Fund; transparent no-load currency mutual funds that do not typically employ leverage. To learn more about the Funds, please visit www.merkfunds.com.

By Axel Merk

Manager of the Merk Hard, Asian and Absolute Return Currency Funds, www.merkfunds.com

Axel Merk, President & CIO of Merk Investments, LLC, is an expert on hard money, macro trends and international investing. He is considered an authority on currencies. Axel Merk wrote the book on Sustainable Wealth; order your copy today.

The Merk Absolute Return Currency Fund seeks to generate positive absolute returns by investing in currencies. The Fund is a pure-play on currencies, aiming to profit regardless of the direction of the U.S. dollar or traditional asset classes.

The Merk Asian Currency Fund seeks to profit from a rise in Asian currencies versus the U.S. dollar. The Fund typically invests in a basket of Asian currencies that may include, but are not limited to, the currencies of China, Hong Kong, Japan, India, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.

The Merk Hard Currency Fund seeks to profit from a rise in hard currencies versus the U.S. dollar. Hard currencies are currencies backed by sound monetary policy; sound monetary policy focuses on price stability.

The Funds may be appropriate for you if you are pursuing a long-term goal with a currency component to your portfolio; are willing to tolerate the risks associated with investments in foreign currencies; or are looking for a way to potentially mitigate downside risk in or profit from a secular bear market. For more information on the Funds and to download a prospectus, please visit www.merkfunds.com.

Investors should consider the investment objectives, risks and charges and expenses of the Merk Funds carefully before investing. This and other information is in the prospectus, a copy of which may be obtained by visiting the Funds' website at www.merkfunds.com or calling 866-MERK FUND. Please read the prospectus carefully before you invest.

The Funds primarily invest in foreign currencies and as such, changes in currency exchange rates will affect the value of what the Funds own and the price of the Funds' shares. Investing in foreign instruments bears a greater risk than investing in domestic instruments for reasons such as volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. The Funds are subject to interest rate risk which is the risk that debt securities in the Funds' portfolio will decline in value because of increases in market interest rates. The Funds may also invest in derivative securities which can be volatile and involve various types and degrees of risk. As a non-diversified fund, the Merk Hard Currency Fund will be subject to more investment risk and potential for volatility than a diversified fund because its portfolio may, at times, focus on a limited number of issuers. For a more complete discussion of these and other Fund risks please refer to the Funds' prospectuses.

This report was prepared by Merk Investments LLC, and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute investment advice. Foreside Fund Services, LLC, distributor.

Axel Merk Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules