Following up my last post Wind or Meat, I had mentioned that what Bernanke had to say would affect things either way. And they did.
He didn’t announce any particular policy (what I would’ve referred to as meat) but his “wind,” or words, basically said (my paraphrasing summary):
Past quantitative easing, ie QE, i.e. buying US treasury bonds with Federal Reserve created money has created results and since the job market hasn’t recovered enough, we will consider more QE to help that.
Admitting that he was happy with prior Fed stimulus, and that he believes it works means Bernanke will certainly buy more bonds and further stimulate. So this wind was actually meaty. Unlike Mario Draghi at the ECB in Europe, Bernanke actually has the power and willingness to stimulate with monetary policy. In Europe we have to wait and see if the ECB gets that power before they can do it.
So what were the results in the market?
Long-dated US Treasury Bonds flew up (I sold these too quick in some client accounts settling for a smaller profit). Reason: Bernanke likes the results of past bond buying, he will do it again forcing up 30 year bond prices and forcing down rates.
Stocks in the US experienced a muted rise. QE can’t do much more for stocks at the moment and stock investors know it. It also depends on who’s currency gets weakened the most to see which country’s stock market will benefit the most (in local currency). Furthermore, a stock rally in anticipation of this was already underway (June to August) so much of this stimulus might be priced in the market already and some may want to sell here (we’ll only know as time passes).
Precious metals exploded higher with gold up 2+% and silver up 4+%. Gold mining stocks rose almost 4%. We can’t be sure that printing money will fully benefit stocks yet (except maybe financial companies) but we can be sure that if the US prints more, and Europe prints, the US Dollar and Euro will likely fall further against Asian currencies and HARD ASSETS (ie gold, land, copper, paintings, collectible cars etc).
Precious metals were not anticipating stimulus (at least the charts weren’t) until the same time as equities started rallying but it wasn’t straight up. Therefore, their reaction was stronger. Also, this gives further impetus to tertiary central banks and Asian central banks to move reserves out of US dollars into stronger currencies and precious metals.
Let’s see how things proceed. Got gold?