With the financial world on the edge of its seat waiting to hear the words of Fed chairman Ben Bernanke from Jackson Hole this coming Friday this is not the time to be buying equities. It would be pure speculation and not an investment.
For so powerful have the global central banks become in financial markets that their call is the only one that counts at the moment. This is actually a very dangerous development. A market economy depends on allowing the market to function. If it is not allowed to work then all sorts of things go wrong.
Money printing
Right now de facto money printing by the global central banks is what holds things up. What does that mean? It means the price of houses, stocks and many other assets are artificially high because interest rates are being held artificially low.
What do we all know about artifice? It is an illusion, a conjuring trick. The plates will always crash to the ground when the spinning stops. How much more spin does Chairman Bernanke have up his sleeve?
With the US presidential election in November there is bound to be a political spin too this autumn. Gold superbug Jim Sinclair has it that Bernanke will go for a pre-election burst of money printing often referred to as QE3 because a Romney presidency would cost him his job. Who knows, he might be right, although conspiracy theories always abound in Washington.
QE3 logic
ArabianMoney has always given Mr Bernanke more rope with which to hang himself. We think he’s keeping QE3 ready for the big financial crash when markets wake up and realize that they are overvalued for the economic outlook and entirely dependent on low interest rates that are gradually vanishing all over the world.
Go to any bank for a loan and you will find interest rates are on the way up, not down. It’s the achilles heel of the money printing strategy. This artifice only works for a limited time and then you have the payback of higher interest rates and inflation.
Mr Bernanke knows this only too well and the conjurer will want to keep his plates spinning for as long as possible. We doubt he will go for QE3 just to please equity markets later this week as this would only set the market up for a bigger fall this fall, and that really could compromise the re-election chances of President Obama.
