Economy

One couldn't imagine any better Christmas gift for hard assets and stocks than Ben Bernanke's surprise introduction of QE4 right on the heels of QE3. Call the duo QE7. "QE7" promises to expand the monetary base far faster than the markets had been discounting [which is great for gold] and also raises the floor under stocks. I suspect we'll close 2012 with a run at the highs, and possibly climb just short of 1,600 on the S&P 500 sometime in Q1. As for Treasury bonds, well, could this spell the end of the bond market? [Let's look at the ramifications of QE4 more closely.] Words: 516

[The just announced] QE4 will see the Fed buying $85B per month in U.S. Tbonds and Fanny/Freddie bonds with newly printed dollars - essentially debasing the dollar by 1 $trillion per year. The cold reality, however, is that each time QE is launched we get less wealth-effect bang for the buck and more inflation and, IMO, by the time it's switched off in mid-2014, we will have a real-world inflation rate of 5%+. (Words: 863; Charts: 2)

As Ayn Rand said “We can ignore reality, but we cannot ignore the consequences of ignoring reality” so, with apologies to Ayn Rand, let’s explore some examples of ignoring reality. (Words: 1132; Charts: 1)

We are on the precipice of enormous financial and economic change. It is not change for the good, especially for the United States. Excesses and mis-allocated resources of several generations are about to be exposed as modern industrial nations sink deeper into the economic hole they have dug for themselves. The purging of these economic mistakes will be painful, could create new wars as politicians attempt to deflect blame and may end up changing the political form of government in some countries. (Words: 364; Charts: 1)

We are in for a tough time for the next four years if the chart below, showing a big dive in economic development expectations, is any indication - ahd here is probably why that is the case. (Words: 200; Chart: 1)

There are huge amounts of money in the IRA ($3.5 trillion) and 401(k) ($5.1 trillion) retirement plans in the U.S. (another $9.9 trillion in assets held elsewhere) according to a recent Investment Company Institute study which makes it very tempting for government to try and get at it. [While] the government may, or may not, tax the money, they may force you to include a sizable percentage of the retirement assets in your IRA and/or 401(k) in U.S. Treasury securities, which may be among the worst investments in the years ahead as interest rates go up and price inflation eats away at the buying power of those IOUs. [Let me explain.] Words: 802

Saving rates continue to fall. As full-time employment remains elusive, the average American continues to resort to debt, and governmental support, to fill the gap between waning real incomes and their expected standard of living....[This] will continue to impede economic growth until such time as either debt returns to levels that are conducive for higher levels of personal savings or incomes rise. [Words: 1322; Charts: 7]

Why make it difficult if it can be that simple...Andy Richter offers the perfect explanation of the Fiscal Cliff in this 1:37 minute video.

Goldman Sachs has been out with a number of reports in recent weeks highlighting their positioning for 2013. While it's important to keep in mind that these kinds of reports are no holy grail... it is always good for brain storming and, after all, it's not like Goldman Sachs is a bunch of dummies.

Been too busy to stay informed about developments on the financial/economic scene this week? Here are links to 6 of the “best-of-the-best” articles which have been edited for the sake of clarity and brevity to ensure you a fast and easy read. Enjoy!