Over the past week I’ve been reading and hearing a lot of material on this Quantitative Easing by Bernanke etc. How his talk was interpreted was a mess so the Fed’s president spoke to clarify things on how QE would be approached, blah blah blah. And more about how Bernanke was trying to take some of the juice out of the Equity market so it wouldn’t take off without the economy.
Now, 2-3 weeks later, many see exactly what many feared. With the Fed acting the way it is with it’s policies, analysts have found a trend in the last few bubbles. The attached picture explains it perfectly. Whenever the Fed has kept its rates lower than the Nominal GDP, there’s been a bubble. And yes, that is exactly the position we are in now.
Many now fear that this bubble whether seen or unseen will either happen now because it has been noticed, thus putting investor confidence in the toilet or will be triggered in a more financial fashion, rather than the Red Scare. However, it’s very interesting. Would now be a great time to buy gold? Markets have been somewhat bullish, the fear of a bubble is setting in unless the Fed changes something, and gold is at record lows.So? Buy gold? I mean, if I could, I would, at least a sufficient amount to maybe collateralize what I have invested in equities? Or go all in and become a millionaire if things go my way. But then again isnt that the whole game?
Who knows, just some food for thought. Enjoy your July 4th’s.
A lot of what I’m about to say is going to be reiterating his thoughts, but I though I’d share them with you/ summarize to make it a little bit easier in lay man’s terms.
So this smart guy knows that when bond yields go up, stocks start hurtin’. His point is that after last week, after Bernanke’s talk about the Fed’s position and the volatility in Japan this recent confidence and stability is only an illusion. I like the way he’s looking at what the Fed is doing. Gayed stresses that the Fed is simple “confusing and conquering.” By this he means, say something that can be interpreted 100 different ways, say something confident but not too confident, but nonetheless whatever you do don’t get excited.
Now why would he and the Fed do this? The Fed is worried that stocks are gonna start taking off and forgetting about the still struggling economy. By sending mixed messages, the Fed is taking some of the umph out of the somewhat rising stocks. Gayed puts it perfectly saying “they may be able to stop the advance in U.S. averages from getting too far ahead of itself.”
Additionally Gayed also adds that the Fed should really cut down on talks about tapering if they don’t want to deflate the momentum the housing market has recently experienced over the last few quarters.
The position Gayed takes on this is a position I like. Why else would the Fed come out like this? I mean, I’d like to think they aren’t just a bunch of confusing fools and actually have a reasoning for their ways. Additionally, this stock and bond relationship is highlighted perfectly in reference to whats going on now. Preferably, I’d obviously like to see a nice balance, in tandem with the economy. But I think it’s smart that the Fed is doing what their doing so that the market doesn’t trip on its shoelaces once people realize the economy isn’t so great.