When Bernanke Speaks, Investors Listen
The markets had a big day yesterday after Bernanke strongly hinted at QE3. There’s a shocker! I told you a few months ago that once he named it, it would come to pass. Maybe a little earlier than many expected, but rumors are that he needs to do it sooner rather than later.
The FED is supposed to be apolitical, but all the republican candidates already said they would fire him so his survival instincts are kicking in strong. If he waits too close to the election, it will be obvious Ben is trying to help Obama get re-elected. Therefore, Ben needs to do it early in the election cycle so it is not so obvious it is for political reasons.
We have been hearing for months now the economy was improving and the stimulus worked. Well, today Ben said that while he’s encouraged by the drop in the employment rate, further improvement in the job market will require continued the monetary stimulus.
But what does this mean for you? Jobs weren’t really created because Ben printed and purchased assets/bonds. So more of the same will likely not create new jobs. It will, however, create even more inflation in equity prices, commodities, and precious metals.
That’s why you saw the big move today. Gold was up almost 2% and silver was up 1 1/2%. The major indices were up between 1 1/4% to 1 3/4% with the NASDAQ showing the most relative strength reversing the trend over the past few days.
Stocks and commodities will be more volatile than bonds is the short run, but safer. Let me explain. Most people have been taught that volatility equals risk. Well, I would rather have something bounce or vibrate up and down more, but in an upward trending pattern than barely, gradually rise like a CD.
The dollar losing value almost guarantees you will lose money on a CD in this environment! It will be imperceptible at first. Once inflation kicks into high gear, it will be obvious and maybe too late. Bonds, too, will become very risky.
Therefore, even with the volatility, I am bullish on stocks and especially precious metals. The Bernanke put is alive and well. He has shown his true colors.
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