CENTRAL BANKS’ GAMBLE

Just a few days after posting Where There’s a Boom…, European Central Bank president Mario Draghi announced that he was ready to follow America’s lead and implement a Euro Zone version of quantitative easing (QE) – this in an attempt to soften its deepening economic crisis — and it sent stocks flying.

Like in the U.S., Europe’s monetary authority is placing a bet that it can outmaneuver irresponsible fiscal governance by printing more money.

If they win, economic stagnation is their prize. If they lose, a most undesirable inflationary condition that will cripple world markets and bring about major devaluations in equity, money, debt, and profit will be the award.

Indeed, the stakes are high.

For this, and knowing that matters will soon be made worse by QE3 in America, Wall Street applauded this week, pushing prices for both stocks and gold up. Here’s the year-to-date picture.

9-7-12

As shown, gold is up 11% for the year, the DJIA has added 9%, and the 15-51 Indicator has gained 43%. For stocks these are annual highs – this while U.S. economic growth is declining, job growth is weakening, and Europe’s recession is projected to be “deeper” than anyone previously predicted. And let’s not forget that Asia’s economy is also contracting.

As mentioned many times previously, monetary games cannot correct systemic fiscal and economic problems. (See my Fixing the Market series located in the right rail.)  They can, however, puff short breaths of life into a deflating balloon. That said, be certain that the stock market’s move this year is driven by one thing – inflation. Growth and fundamentals have nothing to do with it.

In my book I warn investors not to get caught up in stock market hype – the overzealous speculation driven by Wall Street propaganda, media pundits, expert guests, and inside traders. Many of these people, of course, will get blindsided by the next correction in which they will bill as “impossible to predict;” and then leave the event with their pockets stuffed with newly printed million dollar bills, courtesy of bad bets placed by the Central Governments everywhere.

These kinds of things incubate higher tax environments with slower growth. Needless to say, that’s not good for people, Markets, and investment. Investors be aware.

Stay tuned…

PS: I would like to specially thank CBS Connecticut local affiliate, WTIC 1080, for the recognition and respect in a recent article (found by clicking their logo below). Thank you very much for the honor!

CBS-Logo

Sincerely,

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