Quantitative Easing And Investments

Using QE To Make Your Portfolio More Profitable

monetary easingSince 2009 when the Fed began the cycle of aggressive economic stimulus, market bears and market bulls were polarized in their opinions for and against QE.  Those who have remained for monetary easing have been pleased to see the stock markets reach all new highs in the 2009-2013 QE bubble.  Others have waited in anticipation for the bubble to bloat and balloon until the monetary supply is so puffed up that there is no way to turn around inflation.

As a result, we saw the markets take a nose dive when the Fed announced they were considering the process of tapering QE.  When the dust settled after that initial shock, it was realized that if/when the Fed begins tapering it would be done very slowly and over a long period of time.

The Monetary Supply Is Out Of Balance Thanks To QE

One major issue we are facing as a result of the extensive easing, is that monetary supply is out of whack in comparison to the actual performance and size of the economy.  Since the beginning of 2013 the supply rose by 21.8% and bank reserves rose by 29%.  When you consider the fact that the GDP only rose by 4% the impact of monetary easing is easier to realize.

The Purpose Of Quantitative Easing

The reason the Fed has been doing quantitative easing is to try to keep interest rates suppressed while boosting inflation in an effort to raise unemployment and increase lending.  Contrary to their plan, the Fed has also been paying interest 0.25% interest to lenders as a reward for hanging onto their reserves and not lending them out and flooding the economy.  If the Fed were to stop paying interest (similar to the way it was prior to 2008) or if long-term rates were to rise significantly above 0.25%, the banks will start lending out their reserves and inflation will once again be on the rise.  The natural progression with QE is that when monetary reserves rise, inflation rises, interest rates fall, and gold responds favorably.

Global Economic Stimulus Changing The Investment Cards

Another major factor impacting investments as a result of Quantitative Easing is the fact that the U.S. is not the only major country performing massive easing.  Japan has been dumping money into their economy much harder and faster than the U.S.’s QE program.  They have boosted their economy and stock market significantly since the beginning of monetary stimulus.  The hope is that it will solve the government debt problems in Japan like it did in the U.K back in 1945-1975.  Inflation can be expected in Japan following their massive monetary easing program.

How to Invest In Spite Of Global QE?

Japan’s not alone in their monetary stimulus programs.  Many other big players are using QE in an effort to stimulate growth in their sluggish economies.  Here in the U.S. we can expect some major ups and downs every time the Fed indicates they might begin tapering the QE program, keeping stocks high and gold and other commodities suppressed.  To significantly increase your profit potential during this unique economic time where countries are increasing their monetary base so significantly, consider looking into one of the following;

-Gold and other commodities-currently suppressed, but apt to rise as inflation increases.

-Commodity Mining Companies-currently very undervalued, and less volatile than the commodity itself.

-Japanese stocks, one suggestion is the Wisdom Tree Japan hedged Equity ETF because it minimizes exposure if the Yen crashes against the dollar.


For more information on investments that are expected to take off in today’s current economic environment, speak to a Redhawk Wealth Advisor near you today.


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