Ad Hoc Commentary – the end of the money printing era, capital will give America two good years
In simple English, Uncle Ben said no more printing and USD rates went higher and the US dollar strengthened. Uncle Ben had been kind to us. Now, yours truly is waiting on gold to hit 1100.
After Uncle Ben leaves on Jan 2014, the next Fed Chairman will enjoy a strong curency, rising asset prices and rising yields. If America was a creditor nation, it would be the best of times. But since it is the world’s biggest debtor nation, the good times will be short lived. Perhaps Uncle Ben chose the best time to exit, but made it sound like Obama fired him to calm markets. Uncle Ben exit probably marks the end of money printing by central banks.
When EUR went from 0.8 to 1.6, the Greek debt burden doubled without any new borrowing. But that didn’t stop Greeks from having a good time from 2001-2010.
As USD remains strong in the next two years, American debt will become a burden very quickly. Yours truly believe we will have until the end of Obama’s administration at most, i.e late 2015. Given the short term prospect of the boom, capital should hoard more into American equities than in American real estate. We should be seeing a long term rise in our Dow Jones Industrial till Obama leaves office in late 2015.
In the meantime, governments will be finding ways to keep their treasury bonds afloat. After the era of money printing, bail-ins and taxes will be the norm. Even the under-ground economy is likely to come above-ground in the quest for taxes. Yours truly believe taxable electronic money will be a big hit. Bitcoins had no support because it was difficult to tax anonymous funds.
Banks will be looking to reinvent themselves after the era of indirect bailouts via low rates. Low rates bailout banks at the expense of real money. Banks will also be finding it tough to make financial engineering money in a Dodd-Frank world. Perhaps taxable electronic money will be the new darling of the industry. Of course, it will be marketed as part of the global fight against terrorism to make it more palatable to the masses who fear the loss of privacy. We are here to ‘protect’ you.
Good luck in the markets.