Monday, October 8, 2012

Disastrous Fed Policy Does Provide Road Map

Even though the decision by Ben Bernanke and the Federal Reserve to initiate an open-ended acquisition of mortgage-backed securities to the tune of $40 billion a month is a disaster, the good news is it does provide a roadmap for investors who would be smart to move from the U.S. dollar to hard assets.

By committing to attempt to bolster the mortgage sector, Bernanke and friends hope to push the prices of homes up in an attempt to boost the overall economy. Has he and they already forgotten the housing bubble? Apparently so.

The ECB, presumably anticipating the Fed move, or having had been communicated with by the Fed beforehand, made its stimulus the week before.

Not long after those two moves other central banks around the world followed suit, wrongly believing a weak currency is better for the country. This is, in most cases, a nod towards the belief a country's exports will plunge if their currencies rise too much.

Commenting on this recently, Peter Schiff said this:

All of this simultaneous money creation will likely be a boon for nominal stock and real estate prices. But in real terms such gains will likely not keep pace with dollar depreciation.  Inflation pushes up prices for just about everything, so stocks and real estate are not likely to prove to be exceptions. Even bond prices can rise in the short term, but their real values are the most vulnerable to decline. In fact, even nominal bond prices will ultimately fall, as inflation eventually sends interest rates climbing.  But prices for hard assets, precious metals, commodities, and even those few remaining relatively hard currencies should be on the leading edge of the upward trend in prices.
Some investing options are to move towards commodities, and in some currencies that haven't had the central banks of the respective countries implement quantitative easing.

Again, now that we know what the Federal Reserve and other important central banks are going to do, it makes it much clearer on where to invest our money, as the Fed has suggested it will continue to stimulate until the unemployment rate falls below 6 percent, and possibly as low as 5.5 percent.

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