Features

Don’t be fooled by QE – stocks will crash hard

Contrary to received opinion, central bankers can’t fix the world’s problems. John C Burford explains why Mario Draghi is no exception.

150126-draghi

When the big moment came, Mario delivered.

On Thursday, Mario Draghi, the European Central Bank (ECB) president, announced a massive money-printing (or QE) programme to the relief of bond speculators, gamblers and not a few government ministers.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Draghi is going to print new euros and use them to buy government bonds. That drives the price of the bonds up and makes speculators, and government officials, very happy indeed. Speculators get a quick profit and governments get to borrow money on the cheap.

For Draghi, getting conservative Germans at the European Central Bank to go along with this money-printing programme wasn't easy. The Germans hate money printing and for years, they've been able to block it from happening. But Mario got his way in the end it would seem that the old smoothie has a sterling silver tongue.

Advertisement
Advertisement - Article continues below

There's just one problem with this money printing doesn't work! No amount of money printing can fix the problems with eurozone economies. Newly printed money won't end up in the pockets of ordinary citizens. It'll be tucked away by hedge funds/banks with no productive home to go to.

Today, I'm going to take a break from the charts. I've seen too much claptrap in the media about how money printing is going to fix the world's problems. Today, I want to set the record straight!

Mario Draghi is dead wrong

Well, there are only a few examples of money printing in modern times. Japan is one of them. In the 1990s, Japan tried its hardest to print its way out of a depression.

But the results couldn't be clearer the plan failed totally. Japan is a telling example of how gargantuan money printing and rock bottom interest simply don't work. Japan's economy is no bigger than it was 20years ago.

The real reason the European economy is weak is because social mood is negative. What does that mean? Well, when consumers are feeling perky and confident, they buy more stuff - andvice versa.Since modern economies are made up mostly of consumption, people buying less stuff leads to a weak economy overall. And no amount of money printing can change the 'social mood'.

Money printing is nothing more than a snake oil remedy. If it did actually work, governments all over the world since time immemorial would have discovered it was the magic solution to wealth creation.

Advertisement
Advertisement - Article continues below

And if money printing worked, trading the markets would be easy. There would be no business cycles, and share prices would rise smoothly. But as a seasoned trader, I know nothing in the market comes easily.

Forget about QE stocks will be crushed

Everyone is certain that the stock market is going to keep rising. In a survey of money managers I read recently, not one of them forecast a down year for the S&P in 2015. How's that for group-think? I will take the other side of that bet, thank you very much!

US stocks are especially vulnerable. The strong dollar will hurt American exporters and in some sectors, like technology, stocks are ludicrously overpriced. Not to mention the fact that a record number of traders are borrowing to buy stocks not a good sign. The scene is set for an almighty collapse in shares.The oil market is showing the way.

The only way is down.

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/trading/spread-betting/600782/boeings-share-price-plummets-heres-how-to-play-it
Spread betting

Boeing's share price plummets: here's how to play it

Boeing shares have fallen by a third this year. But there could be worse to come. Matthew Partridge explains how traders should play it
10 Feb 2020
Visit/investments/bonds/government-bonds/600738/keep-an-eye-on-swedens-interest-rates
Government bonds

Keep an eye on Sweden's interest rates

Could Sweden be poised to return to negative interest rates?
31 Jan 2020
Visit/economy/uk-economy/brexit/600739/boris-johnsons-big-brexit-plan
Brexit

Boris Johnson’s big Brexit plan

The prime minister needs to get Brexit done, and get the economy growing – particularly for first-time Tory voters. Can he manage all that while negot…
30 Jan 2020

Most Popular

Visit/economy/inflation/600799/federal-reserve-inflation-money-printing
Inflation

Here’s why the Federal Reserve might print more money before 2020 is out

The Federal Reserve wants to allow US inflation to run “hot” for a while. But that’s just an excuse to keep interest rates low – and possibly print mo…
10 Feb 2020
Visit/investments/investment-strategy/600804/the-secret-to-avoiding-being-panicked-out-of-your-portfolio
Investment strategy

The secret to avoiding being panicked out of your portfolio

With the coronavirus continuing to occupy headlines, investors still aren’t sure how to react. But the one thing you mustn’t do is panic. Tim Price ex…
11 Feb 2020
Visit/economy/600796/money-minute-monday-10-february-lacklustre-growth-in-the-uk-and-europe
Economy

Money Minute Monday 10 February: lacklustre growth in the UK and Europe

Today's Money Minute looks ahead to the week's GDP growth estimates for the UK and the eurozone, plus inflation figures for the USA.
10 Feb 2020
Visit/investments/commodities/600729/the-rare-earth-metal-that-wont-be-a-secret-for-long
Sponsored

The rare earth metal that won't be a secret for long

SPONSORED CONTENT – You can’t keep a good thing hidden forever; now is the time to consider Pensana Rare Earths and the rare earth metals NdPr.
31 Jan 2020