The year the Fed went mad

We haven't had a bad year at MoneyWeek. Gold hasn't outperformed as much as we'd hoped. But it's held up just fine and is sitting nicely in all our portfolios as a hedge against the nasties to come. House prices haven't fallen as much as we forecast, but London aside they're still falling in nominal terms at least, and so inching their way towards affordability.

The income-producing defensives we've urged you to hold for some years now outperformed in the first half, while the smaller caps and cheap European stocks we shifted some of our allegiance to in the summer have also done nicely. More investors now seem to share our concerns about safe haven' bonds US Treasury yields have risen slightly and the FT notes there is "chatter building" that the great bond rally may be at a turning point.

But the best early Christmas present of all (for me at least) is that Japan looks like it is finally coming good. The Nikkei 225 is up 14.6% in the last five weeks, thanks to the election of LDP leader Shinzo Abe and his money-printing plans.

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Those of you suffering from lack of Christmas spirit will say that the 14% rise hardly compensates you for the losses of the last few years. You'll also say it is just another false dawn for the world's second (or perhaps third depending on your favoured statistics) largest economy.

Japan, you will say, as did my recent interviewee, ex-Olympus boss Mike Woodford is "rotting from the core". Its big companies are beyond redemption their lack of competitiveness and outdated corporate culture makes them uninvestable.

You might be right. But we feel rather more cheerful. We suspect Japan's real problem has been its failure to enter the currency war with the same gusto as other developed countries. Now Abe looks like he is going to have a go at getting the Bank of Japan moving.

However, while it is a huge relief to know that you'll all finally be making a bit on your Japanese holdings, the fact that the world's central banks are having a competition to see who can debase their currency the most isn't ideal.

When future historians look back on 2012, they may well see it as the year in which central bankers went mad. When the Fed decided to keep printing money even though its original reason for doing so (shrinking US money supply) was gone. When the Bank of England began to help the UK government to monetise its debt. And when Maro Draghi announced that the European Central Bank would do "whatever it takes" to save the euro.

It's all good for our investments in a temporary, nominal, sort of a way. But it is probably not much good for anything else. Hang on to the gold.

Finally I'd like to wish a Merry Christmas and a Happy New Year to all of you. There won't be an issue next week, but you will get your next one on 4 January 2013.