My prediction for Ben Bernanke and QE2
- Spanish bankers’ $1 trillion prediction
- Mr. Krugman’s perverse wish
- An important fact from Jason Cimpl
With the mid-term elections still not quite wrapped up and the FOMC meeting Quantitative Easing (QE) announcement not yet made, we are in the eye of the storm.
My over-under prediction for the Fed’s announcement is $1 trillion in new Treasury purchases.
If the announcement is at or under $1 trillion, I think it will be a disappointment to global markets and investors. The effect: stocks and commodities will wither, while the dollar will rally.
If the announcement is over $1 trillion, I expect stocks and commodities to rally, and the dollar to weaken.
I’m getting a little help on the $1 trillion ballpark figure from the Spanish banking group BBVA. Economists there are predicting $1 trillion.
NPR news has been talking about a $500 billion number for a low-ball prediction.
And on the high-end, we have Nobel Prize winning economist and New York Times columnist Paul Krugman hoping (but not necessarily predicting) for up to $10 trillion.
For the record, I think Mr. Krugman will eventually get his wish - and more - for the simple reason that the Federal Government has somewhere between $100 and $200 trillion in unfunded expenses coming due in the next ~40 years. Sure, some of it will come from taxes, but a good chunk of it will be created with a keystroke at some computer sitting in the bowels of the Federal Reserve.
So Mr. Krugman will see his $10 trillion QE happen. I don’t think it will happen in the next year, but it will happen.
In the meantime, I’m currently focused on today’s announcement and how much money Ben Bernanke and the Fed will print immediately and over the next few months.
Yesterday Wyatt Research’s Jason Cimpl discussed some of the effects of Ben Bernanke’s QE and the strength of the dollar:
“....dollar abolishment by the Fed was the catalyst that moved the market - not underlying fundamentals.”
That’s an important fact you need to know in order to effectively invest in stocks, commodities, bonds - almost every asset class will march higher as long as the dollar is falling.
I think we can reasonably expect the opposite to be true over the short term: a rising dollar will crash nearly all asset classes.
As commodity investors, we need to be leery of short term trends like a rallying dollar, and use them to buy companies that we like at cheap valuations. Even though we’re in the midst of a bull run in commodities, we can maximize our gains if we choose our entry points wisely.
The Federal Reserve creates inefficiencies in the market which provide us with potential buying opportunities.
Over the next few months, look for commodity price weakness as an opportunity to average into positions that you’re already up on. We’ve had a great Summer and Fall, and anyone picking commodity stocks looks like a genius. Now is the time when uncertainty in commodities will create additional opportunities, so steel yourself to have the patience, courage and capital to seize these opportunities.
In yesterday’s issue of the Resource Prospector, I listed some commodity stocks you might want to look into and buy on weakness.
We have years left before this commodity run tops out, but your best chance to pick up some deals in the sector could have a deadline of a few weeks or months.
Good investing,
Kevin McElroy
Editor
Resource Prospector
