Investors were expecting to get a punch in the face from Ben Bernanke on Wednesday.
Instead they got a big sloppy kiss on the lips.
Now, you may be having trouble working out which you’d prefer. But markets were in no doubt. Stocks soared. Bonds leaped (so yields fell). Gold rocketed.
You see, most people had expected Ben to start printing a little less money. He’d been hinting at it since May. Markets had convinced themselves it was coming. They thought that from next month, they’d be getting around $70-$75bn a month in free money, rather than $85bn.
But no. Even a $5bn cut was a step too far for Ben. Stunned investors rapidly re-adjusted to the return of ‘QE infinity’ and sent just about everything higher except the US dollar.
Ben had lots of excuses not to taper. He’s worried that politicians will mess things up when all the squabbling over the debt ceiling starts up yet again.
He’s worried that employment is not picking up fast enough. He’s worried that a jump in long-term interest rates is damaging the housing market, by making mortgages more expensive.
But more than anything else, as I noted in Thursday’s Money Morning, he’s worried that history might see him as the guy who ended stimulus too early, and started the next Great Depression.
I think the big risk he’s running – quite apart from the longer-term inflation risk – is that markets start ignoring him. For the moment he’s got them on a pretty tight leash.
Similarly to the UK, markets might start to look through what central bankers are doing now, and get worried about what they’ll be forced to do in the future.
You see, if inflation takes off and becomes a political issue, then central bankers will have to act fast to cap it. And the longer they leave this untackled, the harder and higher they’ll have to raise rates in the end. If your economy is still largely dependent on debt-fuelled spending at that point, then collapse is near-certain.
That doesn’t bode particularly well for Britain, where our economic policy seems to be based on reflating a ridiculously over-priced housing market (our editor-in-chief, Merryn Somerset Webb, was on Channel 4 this week talking about it – if you missed it, you can catch her here).
And my colleagues over at the Fleet Street Letter have put together a report all about our debt problems – you can watch it here.
Making hay while the Fed prints
But in the meantime, there are plenty of cheap markets out there – outside the US – and you might as well make hay while the sun shines. We’ve had plenty in MoneyWeek magazine in recent months on emerging markets such as Brazil and Russia, and of course, there’s always Japan, which has been generating a lot of genuinely good economic data recently.
And if you’re interested in UK recovery stocks, we’ve a few options in the magazine this week. Our experts choose their favourites, and my colleague Phil Oakley looks at one beaten-down high-risk share that has turned out to be a fantastic money-making recovery punt in the past. If you’re not already a subscriber, get your first three issues free here.
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In matters of investment, don’t trust your gut
“Gut reactions are all well and good when it comes to some things. But when it comes to investing, gut reactions can be totally counter-productive. The sub-conscious makes excuses as to why the gut instinct is right – it presents your biases as hard fact.” And unfortunately, this means you can miss out on great opportunities.
As Bengt explains, you’ve got to ignore that “little emotional tug that ‘likes’ or ‘hates’ different assets… You may never be rid of these biases, but you can train yourself to spot them – and then ignore them.”
There’s an easy solution – you just have to analyse the key numbers, and invest on that basis, not on how you ‘feel’ about a company.
This should be really basic stuff – it IS really basic stuff – but so many of us just ignore it. I thoroughly recommend you read the piece in full – an investor’s worst enemy is their own behavioural quirks, and Bengt has picked up on a really important one here. He also looks at a couple of successful stocks that investors have ignored because of their ‘guts’.
Stop fretting about population growth
Sir David Attenborough has been decrying population growth yet again in the Daily Telegraph. Sir David has made some cracking nature programmes, but he’s on sticky ground with this issue, and to be fair he recognises the sensitivities around it.
But he reckons his basic point is right. Too many humans in not enough space equals disaster. Mother Nature will do for us if we don’t sort ourselves out first.
However, maybe Sir David doesn’t need to worry as much, says my colleague Merryn Somerset Webb in her blog. As Matt Ridley points out in the Times, the best way to sort the problem out is to make people better off “(so they stop competing with nature for land), and to stop their existing children dying.”
Once this happens, the birth rate falls sharply (“Brazil is down from 5.7 in the 1960s, to 1.8 now”). Indeed, “says Ridley, the population will ‘almost certainly’ begin to actually shrink this century.”
It’s a controversial topic of course, so it drew a range of responses. Cynicalinvestor found it all too glib. “I am concerned that the UN predict a world population of 10.9 billion by 2100, that huge numbers of species are in decline, biodiversity is decreasing and food production is sensitive to many global changes. Dismissing the subject so trivially is not a good idea.”
However, regular commentator Boris MacDonut broadly agreed with Merryn (a rare occasion, it has to be said). He added: “Urbanisation will go on unabated meaning much less pressure on humankind on the countryside. People want to live in close proximity to others for a variety of reasons and living in cities has many efficiencies in terms of resource use.”
Natalie also chipped in that educating women better was important. Although “the only downside of having very high-achieving women is that once they can employ nannies to do the hard work of bringing up their children, a number of them appear to then have more children than the average again.”
A new face – and a new video
As you’ve probably noticed, we’ve a new face on the Money Morning team – Ed Bowsher. Ed is a top financial writer and experienced private investor, and as well as writing Money Morning, he’ll be putting together our weekly video, giving investors a guide to basic investment ideas.
To hear about other bits and pieces on the internet that have amused us or made us think, sign up for our Twitter feeds – we’ve listed them below.
Have a great weekend!
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