As Ben Bernanke and The Federal Reserve prepare to announce their strategy for the next round of quantitative easing (QE2), Gloom Boom & Doom publisher Marc Faber says that the amount of money they plan on committing may not be enough to keep the markets from taking a short-term, downward correction:
A lot of QE2 has been discounted. If you were Mr. Bernanke I suppose that you would probably disappoint investors somewhat with QE2 and watch once for the market reaction. If the markets really sell off you can then increase QE2 or launch QE3, QE4, QE5 and so forth. There’ll be many more QE’s.
I think that anything under a trillion dollars will kind of disappoint the market a little bit. The markets are stretched. We are in the inflation trade again. Weak dollar, strong precious metal prices and strong equity prices…
I think that a correction is overdue, but I wouldn’t think the bear market is around the corner. I think on a correction there will be buying opportunity and I think we will have a crack up boom in stocks.
I continue to recommend the accumulation of precious metals, whereby, I think that they are overdue for some kind of a correction here, and then will get the next move probably next year and thereafter.
Quantitative easing and government intervention makes for a very tricky environment. For those who don’t care about stock prices and “paper” assets, keep in mind that what happens on Wall Street and in the meeting rooms of The Federal Reserve will directly affect Americans on Main Street.
In order to maintain stock markets at current levels, the Fed has to print more money and lend it out to the banks so that they can then slam this back into the system and keep asset prices “stabilized.”
If this easy money goes away, we can fully expect a complete meltdown in stocks. Ben Bernanke has already told us that they will not let this happen. One can only deduce that this means they will continue introducing quantitative easing until the problem is fixed (which is not going to happen, perhaps, ever).
The bottom line is, that we cannot predict for sure what happens to stocks, but we can be fairly confident that Mr. Bernanke will continue easy money policies, which will put even more pressure on the US dollar in the long-term.
The only actionable advice for us is to continue looking at hard assets – commodities. If prices do correct or crash in things like food and precious metals, consider stocking up as much as possible, because they are going higher in the long term.
If you’re holding stocks and are not sure what happens next, consider watching Mark Faber’s interview for some ideas: