After reading those books, can YOU tell me how the central bankers EXIT strategy will work? Watch Japan for a preview.
Here is Jim Grant
Inflation is a state of affairs in which there is too much money. It’s not too much money chasing too few goods. It’s too much money, the thing that this money chases is variable. And in this particular cycle and for some time, it has chased commercial real estate, bonds, stocks, financial assets of all kinds. Iowa farm land. There is a huge excess of liquidity in the world. Central banks furnish this, they stuff us with it. In the interest of levitating markets that will, they think
On the Equity rally:
Yes there are terrific companies generating terrific cash flows. That is certainly true. But beneath the surface of things or not so far beneath the surface of things, as far as central banks, practicing not original policies but original sin. This is these policies are not so original. They go back to the time of Revolutionary France. You know the idea of creating currency with which to create human happiness is as old as the hills.
Gold has been in a bull market for 12 years. Gold is this rare thing in which you can be bullish and yet contrary and also with the trend. There is I think a general fatigue animus towards gold. The gold prices are reciprocal of the world’s view of the competence of central banks. The greater the world’s confidence in the Ben Bernanke’s of the world, the weaker the gold market. The less the world holds confidence in the institution of managed currencies, the stronger the gold market. And to me the confidence is utterly misplaced,
Money supply growth is falling. Go here: http://www.federalreserve.gov/econresdata/statisticsdata.htm The latest numbers show 13-week seasonally adjusted M2 annualized money supply growth is down to 5.7%. Non-seasonally adjusted is down to 5.8%. 4-week data averaged over 13 weeks is at 3.8% annualized. This four-week number shows the intensity of the decline in current weeks versus that of the longer term 13 week number.
Jim Grant in his Interest Rate Observer (www.grantspub.com) writes in his June 1, 2012 issue, “To judge by deeds, not words, the Bank of Bernanke is as tight as a tick. Over the past three months, Federal Reserve Bank credit has shrunk at an annual rate of 9.3%. At the peak of QE2 one year ago, Fed credit was billowing at short-term annualized rates of as much as 47%. Waiting for QE3.”
Also of note is Grant’s expectation of a QE3 to reverse the trend. Indeed, that’s the kicker here. The trend in money growth and credit is slowing (credit declining) and that’s negative for the stock market and economy, but a major reversal is likely in the not to distant future.
Welcome to the bronco ride.
Use this opportunity to pick up good companies when they go on sale.
Fear and uncertainty are the friends of value investors. However, the pain may be intense at times.