JUST LETTING YOU KNOW
Before you start hearing me whine and complain, you should know that I own housing stocks, financial stocks, banking stocks, Gold and Silver – all of which will be benefactors of the largesse of Ben Bernanke. Why? If interest rates stay low, it helps housing. The margins for the banks stay high – banks will do better. If the Fed prints money, Gold and Silver are going to going to skyrocket. Thus the thesis looks like it might be starting to play out. I also own leading growth names.
With that said, here’s the news today:
Just what we thought. The Federal Reserve, led by Ben “Mr. Bubble” Bernanke and his minions, met in the past couple of days. They came out…blah blah blah – print $40 billion a month – with no end in sight. Blah blah blah, interest rates at zero – at least until 2015. Blah blah blah – we have other arrows in our quiver.
So the Fed did what we thought.
Here’s why it helps markets. The stock market is an asset. Commodities are assets. When you increase that amount of money out of thin air, while there is a fixed amount of those assets, those asset prices are automatically price higher. It’s simple economics and that’s what the Fed has been doing. And now they are going into total hyperdrive.
In his Jackson Hole speech, Ben “Mr. Bubble” Bernanke said that because of his moves, 2 million jobs were created and the markets when higher. He’s targeting the market in the belief that a higher market would make people feel richer and make them apt to spend more, which would help the economy.
Add in the other part of the equation now.
Mario Draghi, the head of the European Central Bank, went to Bernanke University and he’s doing the same.
You also now have China doing billions and billions in infrastructure that they don’t need because they have cities that have no people in them. But everything they’re doing bubbles up assets.
So right now, terrific.
And as I told you last week, the market broke out nicely out of range and now continues higher.
Simplistic as that.
Now to the downside…
I just want you remember this:
We will not react to the market until turns down and shows those signs of turning down. So while I am going to talk about all the potential repercussions and negative implications of what these people are doing, I want you to realize that we believe in the market first…and all the other stuff – second.
So let me repeat again: A lot of the major indices broke out last week and the others followed suit today. The worst areas of the market – all the commodities areas bottomed recently and once the Fed got involved on top of the Europe, the lagging commodity counties and areas, EEM-Emerging Markets, the EFA index have all turned the corner and are all heading up.
None of this is happening on good economic news.
- Today. employment claims which went much higher. Not good.
- In Europe, a lot of recessionary number.
- Here, in the U.S, we’re not in a recession. But we’re muddling through.
So let me set the stage.
The markets are at yearly highs
…and the Fed has rates at zero and is now printing money endlessly.
We’re not in a depression.
But the Fed has rates at zero and is now printing money endlessly.
We’re not in a recession.
But the Fed has rates at zero and is now printing money endlessly.
So what are the repercussions of this?
We have evidence based on two other easy monetary policy times, but which are not even close to what this man is doing right now. Not even close.
Because in the past 12 years we had the:
- Nasdaq-Internet-Tech Bubble. Only dropped 80%.
- The Housing Bubble where housing prices went down 30%…40%…50% in most areas, notwithstanding a couple of places that held.And, of course, the market dropped 56%.
All off of easy monetary policy. Hmm
So…here is the longer-term worry that we’ll only deal with when the market says so: When you have an increase in the money created, but the places where that money goes to remain fixed, those prices go higher.
If you haven’t noticed, since the European Central Bank started talking about billions, commodities, commodity stocks, commodity countries and oil prices have soared.
Here’s why it doesn’t help the economy. When all these commodity prices soar, the cost of doing business for corporations go up, especially companies dependent on oil. Notice how the transports are still lagging. They are lagging for one reason and one reason only…soaring oil prices.
The other part of the equation is bubbles.
We had an amazing over-the-top Nasdaq Bubble. It went down 75% to 80%. Destruction. A bubble off of easy monetary policy. It was not solely because of easy monetary policy.
And then we had the housing bubble. Now let me be clear on that. A big part of that was because of easy monetary policy and the other part of that was that the Fed decided to let lenders give Aunt Mary and Uncle Bob a quarter million dollar mortgage on a home that had already doubled, even though they had $3,000 in the bank. And, course that led to a drop in world markets and a housing crash.
And what is the answer by the Fed to these bubbles? Easier monetary policy.
So think about it. Easy monetary policy causes a bubble. Things crash. And in order fix it, those same people who brought you easy monetary policy and brought you crashes and bubbles – ease even further…which leads to the housing bubble. And guess what we get again? Not only easy monetary policy, but unprecedented over-the-top-never-been-seen-
Zero percentage interest rates and the printing of $ trillions. I know that “trillions” is only a word. But I can’t even get you to imagine how much we’re talking about here. $ TRILLIONS. And these trillions have allowed interest rates to come down as we’re at 1.7% on the 10-year and 2.9 on the 30-year. That’s helped.
But part of that is that the Fed has bought over 60% of our bond issuance over the past year because nobody in their right mind would buy our long-term bonds at these rates. Maybe McMurphy from One Flew Over the Cuckoo’s Nest would buy them, but I wouldn’t.
So the question is, what are these people creating next?
It could be a stock bubble, because in my opinion we’re not going up because of normal reasons. We’re going up because they’re printing money. You know what my thoughts on Gold are…and more than likely Silver along with it.
But what’s the final outcome of all of this?
What have we seen in the past from this? Well, we’ve never had what this guy is doing. So we really don’t know. But we’ve seen kinda sorta seen what he’s done to a lesser extent – and it never worked out well in the long.
We had bubbles and crashes…and a lots of pain.
Keep listening. As long as the market continues to act well and we see leadership and sectors like housing and the financials turning up…Gold and Silver are on a roll here…as long as that continues to go on, GREAT.
But the definition of inflation is too much money chasing nothing. And now, in my opinion…a ton of conjured up money chasing the same amount of assets. And due to the fact that this man Bernanke has been like Eddie Mush from the Bronx Tale with all his predictions, I worry. When it comes to the economy and what to do from 2005 to 2008 – Ben Bernanke was Eddie Mush.
He said sub-prime lending was contained, the economy was fine, housing would rebound, and the housing drop would not affect the economy and he didn’t act until things went into crapper, but we’re supposed to believe he has a handle on things?
Well I’ve got news for you. My dog Cosmo can create a few $ trillion dollars and make the market go up.
He’s not doing anything heroic, courageous, or genius. Printing money will make things go higher. But the question is outcome. If I read one more person say this was a bold and courageous move by Mr. Bubble, I will throw up. And don’t get me started on the politics of this. Why couldn’t Bernanke wait less than 60 days to do this? What was the urgency? The urgency is that Romney said Bernanke was toast if he became President…simple as that. The urgency is to make things look as good as possible in order to solidify his spot…screw any repercussions.
We’re having a contest. Name the Dow at the end of the year. We’ll give out a $1000 in cash to the three. You’ll have until next Tuesday night. You just have to email me at GaryK.com what you the Dow will be at, at the end of the year. I just need your name and the city you’re emailing from. That’s it. If you want to put your phone number, that’s fine.
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Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.