Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
Debt-Driven Consumer Economy Breaking Down - 23rd Oct 17
Next Wall Street Stock Market Crash Looms? Lessons On Anniversary Of 1987 Crash - 23rd Oct 17
This Super Metal Is Set To Soar By 300% - 23rd Oct 17
More New Record Highs As S&P 500 Gets Closer To 2,600 Mark - 23rd Oct 17
Another Minor Stock Market Top? - 23rd Oct 17
Bitcoin Hits $6,000, $100 Billion Market Cap As Helicopter Ben and Jamie Demon Warn The End Is Near! - 22nd Oct 17
Time for Caution in Gold Miners - 22nd Oct 17
“Great Rotation” Ahead; Will it Be Inflationary or Deflationary? - 21st Oct 17
The Trigger for Volatility, Rates and the Next Crisis - 21st Oct 17
Perks to Consider an Agent for Auto Insurance - 21st Oct 17
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

How to Invest for QE Forever

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

By: Money_Morning

Stock-Markets

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 :http://moneymorning.com/2013/02/28/prepare-for-years-of-qe-forever-with-ben-bernanke-at-the-helm/

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: customerservice@moneymorning.com

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

© 2005-2017 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

Catching a Falling Financial Knife