Best of the Week
Most Popular
1.RED ALERT: Paris Terror Attacks - What to Expect Next - STRATFOR
2.Paris Terror Attacks, Death Pangs of a Dying Religion, and Impact on BrExit EU Referendum - Nadeem_Walayat
3.Paris Terror Attacks, Islamic State Attempting to Spark Civil War in France - Nadeem_Walayat
4.Three Shocking Charts That Prove Gold Price Rally Is Coming - Sean Brodrick
5.Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - Mike_Shedlock
6.Africa Population Explosion - Why Europe's Migrant Crisis is Going to Get A Lot Worse - Video - Nadeem_Walayat
7.Gold Mining Stocks May Be The Buy Of The Century - Jeff_Berwick
8.Grandmaster Putin Beats Uncle Sam at His Own Game - Mike_Whitney
9.BRICS? No, CRISIS - Raymond_Matison
10.UK Housing Market Affordability, House Prices Momentum and Trend Forecast - Nadeem_Walayat
Last 5 days
Investors Watch Out For The Auto Industry… - 24th Nov 15
BEA Revises 3rd Quarter 2015 US GDP Economic Growth Upward to 2.07% - 24th Nov 15
Stock Market Supports Are Being Broken - 24th Nov 15
Is Gold Price on the Verge of a Breakout? - 24th Nov 15
Fed’s Tarullo: U.S. Interest Rates Liftoff Should Wait for Signs of Inflation - 24th Nov 15
Silver Price, COT, US Dollar Updates and More - 24th Nov 15
UK Regional House Prices Analysis - Video - 23rd Nov 15
Crude Oil Swinging For The Fences - A 20 to 1 Option Play - 23rd Nov 15
US Dollar, CRB, Oil, Gas, Copper and Gold - The Chartology of Deflation - 23rd Nov 15
UK Regional House Prices, Cheapest and Most Expensive Property Markets - 23rd Nov 15
Stock Market Rally Losing Momentum? - 23rd Nov 15
Will Gold Price Drop Below $1000 Soon? - 23rd Nov 15
Gold and Silver Sector Big Green Light and Low Risk Entry Setup... - 23rd Nov 15
Limits to Economic Growth - Challenge and Choices - 22nd Nov 15
Long Dollar Trade and Current Copper Price Below Cost of Production - 22nd Nov 15
UK Housing Market House Prices Affordability Crisis - Video - 21st Nov 15
The Fed Has Set the Stage for a Stock Market Crash - 21st Nov 15
Stock Market Primary V Wave Continues - 21st Nov 15
Gold And Silver - Value Of Knowing The Trend - 21st Nov 15
UK Footsie Bulls Set To Foot The Bill - 21st Nov 15
UK Housing Market Affordability, House Prices Momentum and Trend Forecast - 21st Nov 15
GDX Gold Miners’ Strong Q3 Results - 20th Nov 15
End of Schengen, Stock Market’s Technical Strength Grows - 20th Nov 15
Justice for All and The Curious Case of Zambia - 20th Nov 15
Paris, Sharm el-Sheikh, and the Resurrection of Old Europe - 20th Nov 15
Silver Prices and The Management of Perception - 20th Nov 15
Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - 20th Nov 15
Waiting for Goldot Again - 20th Nov 15
Michael Curran Goes Down-Market Shopping for Gold Stock Winners - 20th Nov 15
Why Isn’t This Incredibly Bearish Bond Market Development Making the News? - 19th Nov 15
SPX Appears to have Stopped its Rally - 19th Nov 15
The Great Fall Of China Started At Least 4 Years Ago - 19th Nov 15
Using Elliott Waves: As Simple As A-B-C - 19th Nov 15
Has Deflation Been Ddefeated? - 19th Nov 15
Dow Jones Stock Market Index is Not Going to Crash - 19th Nov 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Reasons to Get Excited About Japanese Stocks

How to Invest for QE Forever

Stock-Markets / Investing 2013 Mar 01, 2013 - 01:38 PM GMT

By: Money_Morning


Diane Alter writes: When Ben Bernanke testified before Congress Tuesday and Wednesday, he staunchly defended his easy- money policies like quantitative easing, or "QE Forever."

"We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery," the Federal Reserve chairman said.

Bernanke added the central bank takes "very seriously" the excessive risk-taking its dovish policies could provoke and is watching markets carefully.

He maintained that the bank's accommodative monetary policy has "supported real growth in employment and kept inflation close to our target [2%]."

But some Fed officials are growing concerned about quantitative easing - the Fed's purchases of $85 billion in securities a month - and believe it would be prudent to slow or stop the buying well before the end of 2013. Esther George, president of the Federal Reserve Bank of Kansas City, is one of the biggest hawks in the Federal Open Market Committee (FOMC) this year, citing unease about economic stability and inflation.

"While I share the objectives [of the FOMC]," George said in a Feb. 12 speech at the University of Nebraska Omaha, "I dissented because of possible risks and the possible costs of these policies exceeding their benefits...While I have agreed with keeping rates low to support this recovery, I know keeping interest rates near zero has its own consequences."

Despite the increasingly anxious sentiment, as long as Bernanke remains at the helm, QE Forever will be the policy. Here's why.

Bernanke's Reasons for Sticking with QE Forever
■Unemployment Expected to Stay High: Bernanke said unemployment probably won't reach a near-healthy 6% until 2016. The Fed's target unemployment rate at which it will consider unwinding QE is 6.5%. The rate now stands at 7.9%.

"The bottom line is that it is QE3 until the job markets improve substantially," Sal Guatieri, senior economist at BMO Capital Markets, told MarketWatch.

But thus far, the Fed's three rounds of QE have had a negligible impact on the economy and unemployment. The longer people remain out of work, the harder it is to re-enter the labor force; and many simply give up.

■Bernanke Thinks Inflation is Tame: While Bernanke says inflation is in check, worries of it rearing its ugly head are mounting. And until Bernanke admits that inflation is a problem, he'll support QE Forever.

Inflationary risks were cited as a reason for re-evaluation of current QE policies. As the Fed continues to purchase securities to keep interest rates down, the risk of inflation grows.

Through its fiscal measures, the Fed has flooded the economy with dollars and increased the money supply. Meanwhile, the nation's $16.6 trillion debt continues to grow at an average rate of $3.85 billion a day.

While government-reported inflation was tame in January, at 1.8%, prices are likely to rise in the months ahead. The Consumer Price Index, a key measure of inflation, showed prices were unchanged for the second consecutive month in January. However, compared with a year ago, all-item prices rose 1.6%.

But hidden from the CPI numbers is the explosive rise in food costs, which grew 0.7%, accounting for more than three-quarters of the increase.

And according to the Producer Price Index for January, vegetable prices jumped 39%, the largest rise in nearly a year.

A seasonally adjusted decline in gasoline offset the rise, but higher fuel costs are expected to impact numbers in the next read. From mid-January to Feb. 11, gas prices rose for 25 straight days, logging the biggest jump in almost a year. The national gas price average is now $3.77 per gallon, up 11% in the past month.

■Rock-Bottom Interest Rates: Historically low interest rates have boosted demand, helped lift home prices and made homeowners feel more finically secure, according to Bernanke.

"In a lot of dimensions, we have, I think, benefited Main Street and that certainly is our objective," he said.

But the low interest rates have allowed only individuals with stellar credit to purchase and refinance homes and cars at very low rates. In the aftermath of the financial crisis, banks have become extremely tight in their lending practices.

Near-zero interest rates have hurt savers and those who rely on interest for income as well as banks, which are making little from funds on hand. As a result, banks have gone fee-happy.

Investing in the World of QE Forever
Without providing an estimated timeline on when the Fed would start to wind down its bond-buying program, Bernanke said the Fed would give plenty of forewarning about any such plans.

Until then, investors should take advantage of the dip in gold and silver as a hedge against inflation and as a store of value. Pure plays include the SPDR Gold Trust (NYSE: GLD) and iShares Silver Trust (NYSE: SLV).

Oil is another option as it looks like we're headed for a jump in oil prices. The United States Oil Fund (NYSE: USO) and PowerShares DB Oil Fund (NYSE: DBO) are two oil bets.

Emerging markets also look attractive amid inflation. A weak U.S. dollar implies greater returns can be found abroad. Consider iShares MSCI Emerging Markets (NYSE: EEM) and Vanguard MSCI Emerging Markets (NYSE: VMO).

Source :

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2015 - 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

Biggest Debt Bomb in History