Ben Bernanke
Debt Ceiling Debates Pushing Central Banks Toward Financial Independence
By John Whitefoot for Daily Gains Letter | Oct 10, 2013
I realize gold is out of favor right now, but there are just too many technical and fundamental indicators pointing to the upside. With the yellow precious metal currently trading near a three-year-plus low, one has to wonder if now is a good time to get involved.
While gold prices recently dipped below the 50-day moving average, they have been finding support on the back of the U.S. government shutdown and impending debt ceiling showdown.
Gold prices were up earlier this week as the U.S. government shutdown barreled into its second week with no end in sight. Astute investors have turned their backs on the U.S. dollar in favor of the yellow precious metal, a global, borderless currency that acts as a store of value.
Granted, Federal Reserve chairman Ben Bernanke claims he doesn’t understand gold prices. But that hasn’t prevented other central banks around the world from adding it to their coffers.
Central banks, which own roughly 18% of the world’s gold supply, are expected to increase their reserves of the precious metal in 2013 by as much as 350 tons, valued at about $15.0 billion. In 2012, central banks from around the world purchased 535 tons of the yellow precious metal, the most since 1964.
Gold may be trading down more than 20% year-to-date, but between July and September, it posted its strongest quarterly gains in a year. Why is the precious metal re-emerging? Oddly enough, it has nothing to do with the Federal Reserve’s $85.0-billion-per -month monetary policy; rather, it’s the idea that the world’s strongest economy and holder of the reserve currency could default on its … Read More
Two Retirement Strategies for Combating Ongoing QE
By John Whitefoot for Daily Gains Letter | Sep 30, 2013
Federal Reserve Chairman Ben Bernanke has reassured us that his quantitative easing (QE) efforts have been an asset for both Wall Street and Main Street. But for some odd reason, the benefits seem to be trickling upward.
Over the last four years, the S&P 500 has climbed 150%. During the same time frame, the number of Americans receiving food stamps has risen 113% to 47 million, or one-sixth of the American population.
As a broader measure, since the Great Recession began, the top one percent of earners have seen their incomes rise 31.4%, while the bottom 99% saw their earnings rise 0.4%. This translates into the top one percent capturing 95% of the total growth in American wealth during the so-called recovery.
Even those Americans who thought they planned responsibly for retirement have been caught flat-footed. Thanks to QE and artificially low interest rates, the Federal Reserve has taken “income” out of “fixed income” investments and made saving for retirement that much harder.
And with “QE Infinity” in play, it’s not going to get any easier. According to a new global study, one in eight workers say they will never be able to fully retire. It’s worse in the U.S. and the U.K., where the numbers sit at roughly 20%. (Source: “The Future of Retirement: Life after Work?,” HSBC.com, September 2013.)
On top of that, just 51% of American workers say they were “very” or “somewhat” confident that they would have enough money to live comfortably in retirement; in 1995, that number was 72%. That said, 51% actually seems a little optimistic when you consider that 57% of workers say … Read More
How to Profit from Gold’s Current Price Instability
By John Whitefoot for Daily Gains Letter | Sep 24, 2013
Gold prices hit one-week highs after the Federal Reserve did exactly what it said it would do (not what the market feared it would do)—continue it’s $85.0-billion-per-month bond buying program until unemployment numbers decrease and inflation increases.
Gold, often seen as a safe haven investment and hedge against inflation, had lost more than 20% of its value since the beginning of the year after the Federal Reserve hinted it would start to taper quantitative easing, which would put an end to its loose monetary policy.
More recently, gold prices had been on the decline since the beginning of September on encouraging U.S. economic data and suggestions that a war in Syria would be averted. Between September 3 and 17, gold lost approximately six percent of its value.
But in spite of gold’s year-long tumble, it’s important to remember that gold prices are still roughly 60% higher than they were in late 2008, before the Federal Reserve kick-started its first round of quantitative easing.
Gold was poised to fall even further had the Federal Reserve announced it would begin to taper its quantitative easing policies. It didn’t, however, and the markets responded in kind.
The price of gold bullion soared 4.2% last Wednesday to around $1,367 per ounce, its largest daily gain since June 2012, after Federal Reserve chairman Ben Bernanke said it would stick to its stimulus plan (for now).
The correction in gold prices was inevitable. That’s because gold, and many other sectors, have become overly reliant on the Federal Reserve’s support. Gold prices drop when investors think the Fed’s going to taper, and they rise when it doesn’t. … Read More
The Fed’s Change of Heart: What It Means for Investors
By John Whitefoot for Daily Gains Letter | Sep 20, 2013
At 2:00 p.m. on Wednesday, Federal Reserve chairman Ben Bernanke said the central bank would, in the eternal quest for job creation and economic growth, continue to buy $85.0 billion a month in bonds. In other words, its third round of quantitative easing (QE III) is charging ahead unabated.
A few minutes later, The New York Times declared, “In Surprise, Fed Decides Not to Curtail Stimulus Effort.” USA Today proclaimed, “Fed delays taper, surprising markets,” while The Guardian said, “Federal Reserve maintains bond-buying stimulus in surprise move.”
Are economic analysts looking at different data than the rest of us? Back on August 29, I predicted the Federal Reserve wouldn’t begin to taper its quantitative easing until early 2014 at the earliest. That was because all of the economic indicators steering the data dependent on quantitative easing policies were nowhere close to being achieved.
For starters, the Federal Reserve said the unemployment rate “remains elevated.” For the Federal Reserve to begin tapering its QE policy, unemployment would have to fall to 6.5%. In August, the unemployment rate held stubbornly high at 7.3%.
The Federal Reserve also wants the U.S. rate of inflation to rise to two percent; after eight months, it’s stuck at one percent. For the Fed to consider tapering, the rate needs to at least double in just a few months—which isn’t going to happen, especially when you look at stagnant wages. Lastly, a new Federal Reserve chairman will be taking the helm in early 2014; Bernanke isn’t going to want to tarnish his reputation or disrupt the U.S. economy before then.
If the Federal Reserve is as good … Read More
One ETF the Fed’s Actions Won’t Affect
By John Whitefoot for Daily Gains Letter | Sep 12, 2013
While the S&P 500 continues to perform well, the markets have been skittish since May 22, when the Federal Reserve hinted it might consider tapering its $85.0-billion-per-month bond-buying program. If Ben Bernanke begins to curtail Wall Street’s monthly allowance, there are fears the markets will not be able to stand on their own economic merit.
Granted, many don’t think the Fed will begin tapering in 2013; this may account for the S&P 500’s solid, yet volatile run. The same can’t be said for emerging markets.
Investors have pulled over $22.0 billion from emerging-market bond funds since the end of April. This has lifted emerging-market bond yields by 1.4 percentage points, almost the most in five years.
Borrowing costs have been on the rise from record lows as speculation swirls around when the Federal Reserve will begin to cut back its quantitative easing measures—this also means the end of artificially low interest rates. This matters to emerging markets, because it signals the end of cheap money that’s been propping up asset prices in countries like India, China, and Indonesia.
Those investors who diversified their retirement fund with emerging-market exchange-traded funds (ETFs) have been in for a rough ride. The MSCI Emerging Markets Index (NYSE/EEM) is down eight percent year-to-date.
One of the few places where the Federal Reserve’s sphere of quantitative easing influence is muted is in the world of frontier markets. Frontier markets refer to countries such as Argentina, Kenya, Qatar, and Vietnam—those markets that are in the early stages of development. Frontier markets are an attractive opportunity for investors, because they represent a long-term economic growth possibility. And there … Read More
Why Chasing Income Stocks Is No Longer a Smart Move
By John Whitefoot for Daily Gains Letter | Aug 2, 2013
America’s favorite sugar daddy, Federal Reserve chairman Ben Bernanke, has once again come to Wall Street’s rescue. The U.S. Federal Reserve said that while the economy continues to recover, it is still in need of support. As a result, it will continue its $85.0 billion-per-month bond-buying program unabated. (Source: “Federal Reserve Issues FOMC Statement,” Board of Governors of the Federal Reserve System web site, July 31, 2013.)
Before the markets opened Wednesday, the Bureau of Economic Analysis reported that second-quarter U.S. gross domestic product (GDP) expanded at a faster-than-expected pace of 1.7%; that’s up from a revised 1.1% in the first quarter. (Source: “National Income and Product Accounts Gross Domestic Product, second quarter 2013 (advance estimate),” Bureau of Economic Analysis web site, July 31, 2013.)
Despite the better-than-expected results, the Federal Reserve said that the U.S. economy expanded at a modest pace during the first six months of the year, and that the overall economic picture remains lackluster.
To help quell nervous investors, the Federal Reserve also revised the unemployment rate at which it would consider raising interest rates to six percent; previously, the Federal Reserve had said it would raise interest rates once the jobless rate hit 6.5%. Needless to say, with unemployment sitting at 7.6%, the U.S. economy has a long way to go.
Lower long-term interest rates are supposed to encourage consumers and businesses to take out loans for homes, new equipment, etc. At the same time, banks have been reluctant to lend to those who need it the most, which is reflected on Wall Street. Thanks to the Federal Reserve’s $85.0-billion-per-month quantitative easing policy, the S&P … Read More
