- Sorry, we already spent it all
- Tim Geithner is a woman
- How to play it
Commodity prices are headed much, much higher in the coming
years. But in short term, I’m not so sure…
Well, I have an active imagination, but I can’t see how Ben
Bernanke’s quantitative easing (QE) announcement next week will be anything
more than a disappointment.
Here’s how I think
it will go down:
On November 3, 2010 (next week) Ben will announce $571
billion worth (to pick a random number) of Treasury purchases – or some other
kind of direct or indirect printing of money.
That’s a good chunk of change, but the problem is that the
market has already boosted nearly every type of asset to price in much bigger
QE. Stocks, bonds, commodities, – it seems like everything except for middle
class homes have skyrocketed in the past two months ahead of big Ben’s
Right now the whole market is acting like an indebted
college student, waiting to get a check from mom and dad to pay back all his
beer and pizza debts. He’s also hoping he’ll get money to buy more pizza and
In this example,
mom is Tim Geithner, aka the U.S. Treasury secretary. Just last week, “mom”
rained down some extremely harsh words regarding QE.
On Monday, Mr. Geithner (mom) said that devaluing the dollar
is “Not going to happen, young man.”
Okay, I added the ‘young man’ part.
So according to mom, we’ll be lucky to even receive enough
money to pay our buddies back – let alone enough to go on another round of
What does dad (Ben Bernanke) have to say? Well, like many
fathers, Ben wishes he didn’t have to make the tough choices, and could just
tell us to go ask our mothers. But he’s in the thick of it.
Two weeks ago dad gave a 4,000 word speech on the topic, and
as far as I can tell he was just hoping to lull us to sleep so he could go in
the other room and smoke stogeys.
You can read this whole speech, delivered at the Federal
Reserve Bank of Boston on October 15, 2010, titled “ "apple-style-span"> "http://federalreserve.gov/newsevents/speech/bernanke20101015a.htm">Monetary
Policy Objectives and Tools in a Low-Inflation
Buried about 1/3 into that speech, pops gave us one small
clue about his plans for QE. He said:
observe that, in a world in which the policy interest rate is close to zero,
the Committee must consider the costs and risks associated with the use of
nonconventional tools when it assesses whether additional policy
accommodation is likely to be beneficial on net.”
This comment tells me that Ben is having second thoughts
about blowing our minds with a huge QE number next week. He might be
following mom’s example, and cutting us loose.
We’ve been guzzling the beer and gobbling the pizza on mom
and dad’s dime for long enough.
Maybe it’s time we learn the value of a dollar.
When Bernanke’s QE announcement disappoints, I believe we’ll
see a short-term rally in the dollar. A more robust dollar will cause
commodities to drop in price, almost across the board.
As I said yesterday in
my article about copper mining giant Freeport McMoran (NYSE:
FCX), a short-term correction is good news if you want to build
a position in commodity stocks at cheaper valuations.
There’s a really
good chance that Ben will disappoint. Get your portfolios ready.
Incidentally, if you’re looking to build a position in gold,
silver and agriculture commodities, my boss and Chief Investment Strategist
Ian Wyatt recently worked with me on a full report on the three best
commodity ETFs to buy today.
These three ETFs have all been on a tear, but if Ben
disappoints, I think they’ll sell at great prices in the coming weeks.
a look at the details of these ETFs by clicking here now.
And hey, I could be wrong. But if I am, commodities won’t go
on sale, and they’ll skyrocket sooner.