Tuesday, January 31, 2012

The New World Order[ed by Bernanke?]

Will Ben Bernanke bring the U.S. to the grips of Hyper-Inflation? Inflation is already on record levels, and soon you may be buying bread for about $100 a loaf.
If that happens, we have Germany to look to on how war and economics are evil twins...NWO anyone? Nazi Germany 2.0 anyone? Erev Rav aiding the cause 2.0 anyone? The pieces are there, and there is not much of a need to read between the lines; it's pretty obvious where the World is headed [before Moshiach].

Money Morning [Australia]:

The Fed announced its plan to keep interest rates at zero until the end of 2014 last week.

This is becoming a joke.

US interest rates were slashed to zero more than three years ago as an emergency measure.

Then that got pushed out by 18 months to mid-2013.

Now the Fed has added another 18 months of zero interest rates by pushing it out again to the end of 2014. That’s three more years.

This will make it a total six years of emergency-level interest rates.

The theory is this stimulates the economy – by reducing debt repayments and making it easier to take out new loans.

It’s sinister. Rather than encourage people to pay debts off, the Fed is making it easier to stay in debt, and also go further into debt.

Anything to get indebted consumers spending money they don’t have!

But it gets worse. This policy also punishes savers, and other investors looking for fixed-income returns. It gives people less incentive to save.

Now it will be three years before money in US banks will earn any interest. That’s if the Fed doesn’t extend this policy again!

And because US inflation is now 3%, the purchasing power of money saved in US banks is in fact falling at 3% a year. It’s like swimming against a tide.

The interest rates are effectively negative. It’s the same situation in China and Europe.

Savers also face the ever-growing risk of the bank going belly up. Instead of a ‘risk-free return’, savers are getting ‘return-free risk’.

So, if savers want to get a return on their cash, they are now forced into higher-risk investments to find it.

This policy will divert more money away from savers’ and funds’ cash holdings, and towards riskier assets, like stocks.

The Solution to the Problem

Somehow, many people still believe holding precious metals is riskier than holding cash. So now that cash holders have to move into ‘riskier assets’ to get a return on their money, gold and silver have both jumped 5% in a few days.

One argument you often hear against buying gold and silver is that neither metal will pay you interest. Now US banks won’t pay interest to savers either. Savers won’t feel like they are missing out on interest payment if they invest in gold and silver over the next three years. Or even longer if the Fed extends this policy yet again, which is quite possible.

Having another three years of zero interest rates in the US is a game changer for gold and silver prices. Gold may be up 14% since late December, and silver more than double this with a 30% gain in the same time. But both stand to keep rising this year on the Fed’s latest move.

Analysts will need to increase their precious metal price forecasts.

Institutional investors rely on precious metal price forecasts to work out how to value gold stocks. So, higher gold and silver price forecasts will lead to higher gold and silver stock valuations and prices.
Something very interesting has already happened with analysts’ gold price forecasts recently. For the first time, they are starting to forecast gold prices to go up.

Year after year, mainstream analysts forecast the gold price to fall. And year after year, it has risen. Back in 2007, the average gold forecast for the following five years looked like this.

By this reckoning, gold would have been US$500 by now. It is in fact 250% higher than this today.

Gold didn’t fall in 2007. It finished the year UP BY 31%, closing around $800 an ounce.

This was a bit embarrassing for the forecasters, so in 2008 they came up with a new five-year forecast. It had gold starting at $800, then falling for five years from there.

But despite everything that happened in 2008, gold didn’t fall. It gained 5.6%.

So the forecasters started higher again in 2009, forecasting prices to fall from there for five years. But again it rose in 2009.

This has happened every year since. Each year the analysts forecast a falling price, get it wrong, and try again.

For the first time, the consensus view is that gold may actually rise. The Fed’s plan to keep rates low for three more years will now just send these forecasts higher. To add fuel to this fire, Bernanke also said the Fed would consider another dose of quantitative easing this year.

This is another reason why gold and silver prices are rising. Quantitative easing devalues the US dollar. Anything priced in US dollars has to rise in price to compensate.

The Fed can’t raise interest rates while it floods the market with cheap money. So the extension of the Fed’s zero interest rates to the end of 2014 gives it space to use more quantitative easing.

The prospect of the Fed forcing money back into the stock market, at the same time as causing higher precious metals prices, is a powerful combination for gold and silver stock prices.

Riskier gold stocks, like explorers, are now really starting to fly. They had a tough time in 2011, but 2012 is looking very different.

This chart shows a junior gold stocks index (GDXJ) over the last two years – and I’ve highlighted in red the bounce we have seen this month.

The four gold explorers I’ve tipped in Diggers and Drillers are now up by 57% on average. The best performer is up by 150%.

These stocks are early stage, and I expect them to rise in price much further as they develop successfully on the road towards production in coming years.

The market conditions for them to thrive are perfect now the Fed has forced investors into riskier assets, as well as turbo-charging the gold price. I’ll be looking to tip more gold explorers for Diggers and Drillers to capitalise on this set up this year.

Don’t Forget Silver

The Fed’s moves are also very bullish for silver stocks. A silver producer I tipped last year is down overall but has rallied 15% over the last month and is following the silver price up strongly.

A more recent silver recommendation, an early stage explorer, is up 14% in a few months. This is only just getting started. With successful exploration, the same forces carrying gold explorers up will carry this silver explorer much higher.

Silver usually outperforms gold in a rally, and has done twice as well as gold in this current one. So this silver explorer could be the most explosive of the precious metals tips this year.

The Fed’s answer to everything is to print money. It’s scary that after more than three years since the start of crisis, they are handing out the same medicine. Like a scene from Groundhog Day, it’s not hard to imagine them still keeping rates down and printing money beyond 2014.

Clearly Bernanke has no grasp on economics – just a grasp on the money printer. If he understood anything, I’m sure he’d put his own money into precious metals and precious metals stocks. Somehow I don’t think he’s smart enough to spot the opportunity.

Will Ben Shalom Bernanke be a real Ben Shalom - helping usher in peace in 5772? I hope so, otherwise we'll all be millionaires...just not the kind we used to dream of.


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