The Fourth Year Of Quantitative Easing

by: Dr. Chris Kacher and Gil Morales

Quantitative easing (QE) has been with us since early 2009. It has rendered many tried-and-true market indicators impotent since price/volume action in leading indices has become somewhat less reliable. Stock market timing techniques since 2009 have been more or less decimated with only the exception of this website and a couple of others, and that said, it has not been an easy environment. One key is to capture the big gains when they occur, while keeping losses to a minimum on false signals which is done by the fail-safe built into the model. Further, pyramiding trending vehicles such as silver (Ishares Silver Trust SLV, Proshares Ultra Silver AGQ) and a couple key stocks in 2011 made all the difference. In 2012 (as of this writing, March 12, 2012), jumping on board a basket of leading stocks we reported on in real-time puts 2012 in a much better light than 2011, which was a year of trendless, news driven, gap-up/gap down volatility.

QE is an effective manner to manipulate the stock market higher, often on anemic volume, creating the illusion of wealth and an improving economy. And since people vote with their portfolio pocketbooks, such investors are more likely to buy stocks in such a stealth bull market environment, creating a further illusion of wealth. Meanwhile, the slow destruction of the dollar and other currencies ensues, as central banks around the world continue to print money.

An exchange traded fund (ETF) that conservative investors may benefit from in the long run is Powershares DB US$ Bearish UDN that corresponds to the Deutsche Bank short U.S. dollar index futures index. As the dollar goes lower, UDN goes higher.

And with QE at the ready, hard assets should continue to do well in the long run. Silver ETF SLV mirrors the price of silver. Gold ETF Spdr Gold Trust GLD mirrors the price of gold. More aggressive investors can also try their hand at 2-times ETFs AGQ (silver) and 2-times Powershares Db Gold Dl ETN DGP or 3-times ETFs VS 3x Silver USLV and VS 3x Gold UGLD . Gold has been in a long term uptrend since 2001, and technical and fundamental signs point to a continuation of this uptrend.

The stock market itself which has been in a big bull market since early 2009, the dawn of the "Age of QE", continues to show strength. Apple Computer, Inc. (NASDAQ:AAPL) continues to forge higher since early 2009. Given that it is nearly 20% of the weighting of the NASDAQ-100 explains the outperformance of this index compared to the slower Russell 2000, S&P 500, and Dow Jones Industrial Average.

That said, one could try their hand at a number of major stock market indices such as Powershares Trust Fund Sr 1 QQQ (1-times NASDAQ-100), SPDR S&P 500 Trust Fund SPY (1-times S&P 500), SPDR Dow Jones ETF Trust Fund DIA (1-times Dow Jones Industrial Average), or Market Vector Semis SMH (1-times SOX semiconductor index). There are also 2-times and 3-times ETF equivalents, but always remember to position size according to your risk tolerance levels, so you can exit the position should it fail without it doing untold damage to your finances or investing psychology.

For those who are asking why QE? Fictitious privatized profits are paid out in the form of bloated bonuses to the financial Illuminati while massive losses, most of which are hidden from the general population, are nationalized. The hard working taxpayer is ultimately left holding the bag as their precious savings become worth less and less while their tax rates go up more and more. And such tax rates are not overt, per se, on a federal level, but come in all shapes in sizes across many levels- small business taxes, city taxes, excise taxes, and so on. And this is all because of too much debt and the drive to rescue zombie banks and zombie businesses in the name of "too big to fail." Thus it is QE to the "rescue."

Ultimately, the solution for too much debt is not more debt - although that's what the U.S., U.K., and Europe seem to think the solution is. It's ludicrous. The euro would strengthen if the weakest EU members were forced to pay their debts by initiating austerity measures on the lagging countries. Also, letting Greece default would send a strong message and allow the EU to focus on its members that are too big to bail. They should be forcing countries to cut spending, they should allow creditors to take big losses, they should allow people to go bankrupt. The idea of printing more money and buying worthless bonds instead of allowing people to go bankrupt is how you destroy an economy, and it's how you destroy the euro.

If the economy were a patient with a brain tumor, the central banks are injecting the patient with morphine to make the patient feel better, but meanwhile, the tumor continues to grow. The price to pay for providing temporary feel good solutions without dealing with the tumor is catastrophic. But we have to remember these people in power are politicians first and want to get reelected, so they inject morphine into the system so the voters will reelect them into office. And the end result may be disastrous stock market results which is indicative of a disastrous economy.

JAPAN vs SCANDINAVIA: When a country or company is bankrupt, they're bankrupt. A country should not deny it and try to prop them up. Obey reality. In Japan, they won't let anybody fail. It's been 21 years since Japan's bubble burst, and since then, the Japanese market is down 75% from where it was. By contrast, in Scandinavia nearly along the same timeline, they saw there were problems, they took their losses, they suffered much pain for a few years, but then they boomed once the zombie businesses and banks were pushed out.

The way capitalism works is you make bad loans, you lose money. In the U.S., we've had states and cities go bankrupt a number of times, but it didn't end the U.S. dollar. You start over from a stronger base once you acknowledge your mistakes. That's what's capitalism is all about. Sadly, capitalism is increasingly practiced only in theory, while the statist and socialist reality grows stronger.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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