Central Banks

  • 10 Jul
    The FED & ECB Meeting Minutes Explained

    The FED & ECB Meeting Minutes Explained

    • Financial markets are very dependent on Central Bank activity.
    • The FED is slowly tightening, but the activity is more a façade than actual tightening. Europe is still easing.
    • The fact is that things will eventually change. When? Nobody knows. The only thing a savvy investor can do is protect themselves and take advantage of everything.

    Introduction

    Many don’t see that the current market is highly influenced by Central Banks.

    In the past 8 years, Central Banks have been continually putting money into the system. The FED has recently stopped doing so, but the ECB is still buying bonds, even corporate bonds, while the Bank of Japan has bought almost everything they can buy. So, it’s clear that high current asset prices are a direct result of Central Bank actions as the fundamentals haven’t really improved as much as asset prices have increased.

    The long-term picture is relatively easy to understand, but I must say, I was surprised by the short-term correlations between Central Bank activity and stock prices. More →

  • 09 Feb
    Europe Is A Long Term Ticking Time Bomb

    Europe Is A Long Term Ticking Time Bomb

    • Europe is made up of many countries, which means there are even more politicians that just want to get reelected creating an immense short term attitude.
    • Don’t buy Europe just because it underperformed the S&P 500, and don’t buy European debt at single digit yields.
    • Tightening won’t work as many countries have an average debt to GDP ratio above 85%, therefore there is a high chance that the Euro remains weak for longer.

    Introduction

    The IMF just reported that the situation in Greece is getting better, but the debt is unsustainable. This contradictory as it implies a long term catastrophe and short term positivity. I’m flabbergasted on a daily basis by the incapacity or unwillingness of the financial world and monetary institutions to look at the long term.

    That’s why I’m here. To warn you about impending catastrophes and perhaps even increase your returns in the process. More →

  • 16 Dec
    Why You Might Want To Start Dollar Cost Averaging Precious Metals

    Why You Might Want To Start Dollar Cost Averaging Precious Metals

    • Central banks’ balance sheets have quadrupled in the last decade.
    • Balance sheets will continue to balloon as there isn’t another option for economic growth in developed countries.
    • You should start to think about protecting yourself from inflationary pressures now, when such fears seem distant and unlikely. It’s the cheapest time to do it.

    Introduction

    Yesterday we discussed the three drivers that could push markets higher if all other factors like interest rates, risk perceptions, and global political issues stay as they are now. However, we didn’t discuss what happens if the underlying pillars that have been holding up global financial markets since the Great Recession change. Today we’ll discuss what could change and how to properly diversify. More →

  • 13 Sep
    What To Expect From The Markets Now

    What To Expect From The Markets Now

    • The German bond’s 3% loss on a 12 basis point yield move shows how risky bonds are right now.
    • The value of the S&P 500 should be around 1,600 but could go lower with bad economic news.
    • Bonds and stocks seem very risky as they both have low yields and large downsides.

    Introduction

    Last Friday was a pretty scary day in the financial markets. The S&P 500 lost 2.45% and bonds also lost ground due to higher yields.

    Stocks and bonds are correlated and don’t provide quality diversification. We have been warning about the risks inherent to bond investing for a while with warnings that the low yields mean high risk and low returns. More →

  • 19 Aug
    The U.S. Dollar: Should You Stick To It Or Diversify Now?

    The U.S. Dollar: Should You Stick To It Or Diversify Now?

    • The dollar has been positively correlated with stocks for the last 4 years which is unusual.
    • Potential FED interest rate increases don’t make international diversification a great idea right now.
    • Any sign of a U.S. recession should be a good time to think about international diversification with emerging markets.

    Introduction

    On big news sites like Bloomberg you often come across headlines related to the movement of the U.S. dollar. The headline below is a good example. More →

  • 20 Jul
    “Helicopter Money” Contagion & A Weimar Germany Type Hyperinflation?

    “Helicopter Money” Contagion & A Weimar Germany Type Hyperinflation?

    • Japan is flirting with new and more aggressive monetary easing.
    • Inflation in the U.S. might already be higher than officially reported.
    • Further monetary easing could be beneficial if, and only if, it stays under control.

    Introduction

    We live in very interesting financial times. With low inflation, central banks are able to inject lots of money into the economy through asset swaps, and still keep interest rates low. More →

  • 14 Jul
    As The S&P 500 Reaches New Highs, Asset Inflation Continues

    As The S&P 500 Reaches New Highs, Asset Inflation Continues

    • All factors are indicating an artificially created asset inflation.
    • Earnings are expected to decline with economic outlook being constantly revised downwards.
    • Gold is gaining alongside stocks which confirms that all assets are inflated.

    Introduction

    Amidst all the turmoil from BREXIT, negative interest rates and global downward economic growth forecasts, the S&P 500 has reached a new high. On Monday it closed at 2,137.16 points, overtaking the previous high of 2,130.82 from May 21, 2015. The Monday record was surpassed again on Tuesday and Wednesday, with Wednesday closing at 2,152.43. More →

  • 13 Jul
    Negative Yielding Debt: A Party for Investors or Pure Stupidity?

    Negative Yielding Debt: A Party for Investors or Pure Stupidity?

    • Almost 30% of global sovereign debt comes with a negative yield.
    • The situation is much worse in Japan and Europe than it is in the U.S.
    • Investors should enjoy the asset inflation party while it lasts but also be prepared for the worst.

    Introduction

    Negative yielding debt seemed impossible and illogical for a long time, but it suddenly became a reality a few years ago and now we are seeing it slowly become the new normal.

    This isn’t just strange, it’s dangerous as risk averse investors—like pension funds and insurance companies—are forced to invest in assets that have traditionally been considered safe but that have now become risky, and their returns minimal. Those low returns will result in lower pensions and lower savings which will create new troubles in the future. More →

  • 29 Apr
    Monetary Policies – US, Europe, Japan and China

    Monetary Policies – US, Europe, Japan and China

    • Central banks hesitate to increase interest rates.
    • Monetary easing does not manage to fuel inflation.
    • If inflation arises stocks should be the best protection.

    Introduction

    The central bank of a country determines the base interest rate at which it gives loans to banks who add a risk premium and give loans to corporate and private customers. The base interest rate is therefore the primary factor for the stimulation of economic growth and reach of target inflation. More →

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