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July 12, 2012

July 12, 2012

Today, we hosted our second conference call of the year Investing Over The Next Fifteen Years become Gold Subscriber today and receive the Premium Commentary as well as a replay of the call.  The conference call will be posted shortly to our secure site and you will receive a email notice once posted. 

 

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Another chapter in our series of articles pointing out that the age of QE-E (QE- Everywhere) is here.

Quantitative Easing (Money Printing) is popular in the U.K. – And Its Use is Likely to Continue

Faced with falling inflation, two consecutive quarters of economic recession, and continued uncertainty across the Channel, The Bank of England (BOE) last Thursday entered its third round of QE — hot on the heels of its second round, which had ended in April.  This time, it pulled out the magic money printing machine and purchased an additional £50 billion of gilts, bringing its total injections to £375 billion.  The BOE now owns a higher percentage of its government’s debt than any other central bank, and its balance sheet relative to GDP has expanded nearly fourfold since 2007.

Although some question the effectiveness of QE (four members of the BOE’s nine-member Monetary Policy Council voted against the current round) there is reason to believe that the UK’s efforts will be more effective than those of Europe or the U.S.

The U.K. plans to solve many problems by continuing QE

It is clear that the BOE is less worried about inflation than growth.  Its dovish stance is likely to continue into the future.  The present coalition government will be in power until 2015, so markets can look forward to consistent fiscal and monetary policy.  Such programs as the (as-yet vague) “funding for lending” scheme, which would inject liquidity into British banks and accept “real economy” loans as collateral, point to a close coordination between the government and its central bank.

It is well known that QE tends to create wealth as it pushes asset prices higher.  Over the intermediate term when the monetary debasement pushes inflation higher, the U.K. will welcome a devaluation of the pound which will help make their exports more competitive.

The BOE plan puts them in a better position to ‘solve’ their indebtedness and slow growth problems, better compared to the dithering policymakers in continental Europe who can’t devalue their currency.  Among the heavily indebted nations, the UK is in a relatively enviable situation.  Less than a quarter of UK government debt is index-linked to inflation and the average maturity of UK debt (about 14 years) is longer than other government debt.  This helps make Britain’s long-term strategy of inflating away the debt, combined with fiscal restraint, more workable.

Britain believes that if inflation leads to a weaker pound, that’s good.  Exports are 31% of the UK’s GDP — double the relative US level. This means that a weaker pound strengthens GDP disproportionately compared to other economies (a 10% drop adds 0.3% to GDP).  And unlike the dollar, the yen, or the yuan, there is unlikely to be a global hue and cry about a weak pound, since UK goods are only a drop in the global bucket…


Necessity is the Mother of Innovation: Private-Public Partnerships Show their Usefulness in Easing Financial Woes


Laying a Course for the Next 15 Years

Global Economy is a Mixed Picture.  Step One: Find Where There is Growth…

Global
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Short-term Summary

For starters, due to debilitated banking systems in much of the world, and due to the fact that many currencies will eventually be devalued, investors should plan to buy and hold a full 10 – 15% position in gold.

1) We find emerging Asia and Russia as most attractive…

2) The next most attractive in our opinion is the parts of the developed world where banking problems have been somewhat dealt with and where trading opportunities in stocks will occur, such as the U.S., Canada, Australia, and even Japan…

3) Another opportunity for investing may arise when regime changes take place due to voter preferences for more business friendly leadership…

Long-Term Outlook

Clearly all of the countries with weak banking systems, banking crises, and/or excess debt levels are going to remain in a very difficult position for the next 15 years.  Periodically, we expect that the time tested model of government money printing will be used by many governments to deal with these issues.  Why?

1.  Politicians are the one making the decisions about how to handle the current problematic period…

2. The public who elect politicians are not financial experts…

3.  This means lower currencies, higher gold prices, higher food prices, higher taxes, more government intervention in the finances of individuals, and more volatile stock markets…

To get the full contentbecome a Gold Subscriber today to receive our weekly Premium Global Market Commentary, where we discuss our formulated plans and investing strategies for the next fifteen years. 

Please click the following link to learn about Gold Subscription Gold Subscription or contact our office at (310) 826-8600.

 


Investment Tactics for the Next Fifteen Years:

Cash is an asset allocation…

Dividend Stocks Can Be a Great Addition to the Portfolio…

Bonds…

Liquidity is King…

Increase Flexibility…

Commit to Staying Informed or Hire Professionals…


We continually update our strategy and tactics to correct for errors.

What if our ideas are wrong?  Learn what we do in those cases.


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