The *if* that’s driving stocks higher; how long can it last?
It has become a beating drum; the Federal Reserve holds a meeting, and an official emerges with a proclamation that Quantitative Easing will soon be phased out. The consequences of QE’s termination could be dire – as the engine backing the stock market’s growth over the past five years, an end to QE could be catastrophic for your stock portfolio.
Fortunately for stock holders, it has been one empty statement after another. Quantitative Easing continues to flood the economy with 85 billion new dollars each and every month, and stocks have been a key beneficiary as they ride the surge of liquidity to new heights.
The latest call for QE’s end has come from John Williams, president of the Federal Reserve Bank of San Francisco. Saying *if* the labor market continues to strengthen, “We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer.” And *if* all goes according to plan with this first step, We could end the purchase program sometime late this year.”
*If* this. *If* that. It’s one after another. Fortunately for stock holders, the *if’s* haven’t won out yet, so Quantitative Easing continues on and on.
But do you really want to base your savings on *if’s*?
Eventually the *if’s* will fall into place. Quantitative Easing will end. And many experts expect stocks to fall as a result.
If your portfolio is based solely on the *if’s* of a stock market being propped up by the Fed, it’s time to diversify into Gold and Silver. Because even just a small portion of your portfolio in precious metals is more protection than you’re going to have with an *if*.
Precious metals on the move
London Fix PM price at week’s end, and change over previous Friday:
- Gold: $1,368.75, down 4.0%
- Silver: $22.52, down 3.6%
- Platinum: $1,470.00, down 1.3%
- Palladium: $736.00, up 4.8%
In the news
Sam Zell says sell
“Right now you are buying at an all-time high. And there are times when stocks hit a high, and then go higher, but that’s when you have a good economy. The current euphoria in the stock market will be adjusted.” – Sam Zell (link)
Eurozone recession “reinforces pressure on the ECB” to cut rates further
“[The first-quarter contraction] reinforces pressure on the ECB to come up with further measures to try and support euro-zone growth. An interest rate cut to 0.25 percent looks ever more possible, while the ECB will also continue to look into the case for a negative deposit rate and ways of getting more credit through to smaller companies.” – Howard Archer, an economist at IHS Global Insight in London (link)
Risk of a downside overshoot in stocks?
“Fed policies have chased investors all in the same direction; into risk-seeking securities. Few care about ‘right-tail’ events, but should investors decide to pare risk in reaction to a hint of ‘tapering’, the overshoot to the downside may surprise many.” – Guy Haselmann, a fixed-income strategist at Scotia Capital Inc. (link)
Gold fundamentals remain firm
“The price of gold will trend upward over the next few decades due to its inherent value as a medium of exchange that provides greater purchase power parity over time and geography. This will be possible when the metal serves as reserve collateral for sovereign fiat currencies to limit imprudent credit and debt formation.” – Moneynews (link)
Don’t be late for gold and silver’s turn or you are “going to miss it”
“Savvy investors see gold and silver as hugely undervalued assets. You can be months early in terms of positioning yourself, but in my opinion you can’t be late when this market turns or you are simply going to miss it. Gold and silver can go that quickly.” – John Embry (link)
Chart of the week
Growth of stock market matches money printing almost perfectly. So what would an end to Quantitative Easing mean for stocks?
The week ahead
- Bank of Japan to make new call on interest rates
- Ben Bernanke to testify to Congress
- Minutes from Fed policy committee to be released
- Existing home sales due Wednesday, FHFA house price index and new home sales on Thursday