Markets have reached a point where fundamentals don’t matter much.
These days, when nasty economic data comes out, stocks are more likely to rise than they are to fall.
Why?
Because ugly data means the Fed is likely to “ease” further — i.e. pump more cash into the economy. That money inevitably finds its way into the markets.
The logic is perverse; but to be a successful investor today, you need to focus more on what the Fed is up to than anything fundamental.
Morgan Stanley’s Jim Caron summed it up nicely in a recent note to clients:
Investment decisions across many asset classes today are tantamount to an educated guess on what the Fed decides to do regarding QE. In the near-term this trumps fundamentals, valuations and almost everything else.
If you believe in any sort of free market, it’s all very frustrating to watch. This market is dependent on a few bank-biased individuals — not ideal, to say the least.
But there is a bright spot in this mess: precious metals, of course.
Gold, silver, palladium, and platinum have all benefited from the Fed’s quantitative easing (QE) experiment.
The rationale for owning these assets is simple: If you believe the Fed will print more money, you should buy physical PMs and miners.
Major inflation doesn’t even need to occur for gold to rise. As long as the Feds keep eroding the dollar’s purchasing power and running huge deficits, gold and other metals should perform well.
Back in December of 2009 — in a piece called “Why I’m Buying the Gold Dips” — I wrote, “There’s simply no way the Fed can stop propping up the market.”
Gold was trading around $1065 then, and it’s over $1300 today.
The long-PM strategy has worked for years, and I don’t see that changing in the near future.
Budget woes and financial uncertainty aren’t going away any time soon, so precious metals should continue to outperform.
Especially now that QE 2.0 is beginning to be accepted as inevitable.
Analysts are finally realizing that deflation will not be allowed to occur. The Fed printing presses are just warming up…
They will continue to devalue the dollar, goose the stock market, and monetize America’s debt for as long as they can get away with it.
Like I said, it’s not ideal. But it’s the hand we’ve been dealt.
Precious metals remain a great way to play it.
Good investing,
Adam Sharp
Analyst, Wealth Daily
