Either I am really lucky or really good. But my posting on "Safety in Commodities" surely hit the mark after listening to the Federal Reserve Chairman this morning. Obviously Mr. Bernanke is not going to allow asset prices to go down and will pump them up as much as needed by printing additional money supply, via QE 3, as per his testimony this morning before Congress. He has acknowledged that the economy is not improving and additionally noted this morning that he will lower rates another 25 basis points as well, which would be virtually zero if he follows through with that action.
All this means if you own stocks or commodities you are looking good going forward. All this free money will be going somewhere and that somewhere will be in additional buying of stocks and pushing up oil, copper, and gold since the dollar will get beat down some more and the response will be prices going up in limited supply commodities to adjust for the weaker exchange rates. Also I believe this opens up the door for buying of rate sensitive stocks such as mortgage backed securities REITS that should perform well since rates will not be going up anytime soon. In a future posting I will suggest some buys in that sector that I have been avoiding due to fears of rates going up. Oil will also get a kick from the fact there is a report out today that even with the additional supply coming from OPEC that there could be as much as a 3 million per day supply deficit in 2012. Understand the rest of the world outside Europe and the USA is expanding economically and buying more oil. Add in the regulatory environment in the USA is restricting supply and you get opportunities in non USA domiciled oil companies for profits.
The comments this morning about lowering the bank rates the last 25 basis points is meant as a shot over the bow of banks and lending institutions to start lending money or Mr. Bernanke will make it virtually impossible to make money on the spread between the borrowing at the Federal Reserve window and Treasury Bonds, which has been what many banks have been doing. The problem there is that the Obama regulatory structure has told banks that if you lend you better have lots of down payment and a golden credit record, which few people have today. Those that do have gold credit prefer not to borrow to expand business in an environment where they have no idea where business is headed. feel that Obama has told anyone who will listen that if you make over $250k you are the hated wealthy, tax rates are said to be going up, and the regulatory environment makes for hoops most just avoid. So what you get is continued static business growth and no additional jobs to be got.
Note this mornings treasury sale went better than I expected as it was the first after the end of QE 2. The reasons were likely the flight to perceived safety from the pending bankruptcies in Europe via Greece, Portugal, Ireland, Spain, and now the biggie Italy. With Italy you are talking big bankruptcy and big trouble if it happens. It also helped that Mr. Bernanke said he would be printing more money and buying bonds in the near future if rates went up and that told bond buyers they were safe from bond value losses for the foreseeable future. We will just have to see what happens with treasury auctions going forward, I still remain concerned about funding.
Now as I said if you are wanting to own hard assets your opportunities for profits remain bright. The losers here if Mr. Bernanke carries through with a QE 3 are people who depend on savings interest and anyone who buys food and gas. Expect inflation in commodities which are in short supply. OIl will be of course and today we learned this year's large corn crop will be 40% dedicated to producing ethanol, so if you buy anything that is made with corn expect prices to move up even more. As most people now know most everything you buy at a grocery store has some part of the corn crop in it. These higher grocery prices do not play well with most people, but the people in Iowa like it a lot being huge corn growers. Imagine that the first state to have political primaries is happy, who knew? China is importing a lot of corn products too so there is pressure for prices to go prices there.
All this means is the economy is not going to grow in the next couple of years and Chairman Bernanke is doing all he can to keep business from actually slipping into depression. Obama for his part continues to be like a deer caught in headlights not knowing what he is doing other than to do things that keep business from growing, such as adding regulations, depressing business expansion, and believing that his makeover of the US is the only thing that matters.
Is this a wonderful country or what? If you want to sell your home chances are you can not. If you want a job chances are likely to get worse. If you need to buy gas or groceries your costs to do so are going up. If you are a corn grower or fertilizer producer you are looking a bumper profits. If you own a oil well life is good. If you are running for re-election as President next year the Fed Chairman has your back. Otherwise you are screwed.
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