Is Bernanke Going Global This Time?

David Frost // Swing Trading


January 16  

By now it may seem obvious, but in case you haven’t noticed, Ben Bernanke has been the best friend the US Markets have ever seen.  Some may wonder, was that just act number one?

If so, what could possible be act two?

The low interest rate policy is here to stay, at least as long as Ben is on guard.  As the US markets continue to float higher, where might the next great opportunity exist for market investors?

In 2012 for example, we experienced large gains in the stock market, bond market, commodities and real estate.  No doubt this was due to the low interest rate policy along with the Federal Reserve being the largest bond buyer in the market.

The S&P 500 finished the year 16% on the plus side.  On average, home prices were up over 11%, and gold increased for the twelfth time in a row, this time by over 9%.  Silver followed along with a 20% gain.

With all central banks around the world on board the Bernanke train, it seems the next logical step is a continuation of the previous steps which is to continue the same policies that seem to be working.

Japan has just made public statements discussing newly found aversion to deflation.  They have decided to inflate their markets by flooding their monetary system with Japanese Yen.

Europe continues to ignore their own insolvency and look the other way rather than face their debt problems that span throughout the entire continent.

All the central bankers have agreed to agree in principal that kicking the can down the road will lead to success, at some point.

The thesis will play on until the music stops.  Right now investors who still believe in the buy and hold method of investing can continue to realize “account inflation” as long as the band is on stage.

Many of the pundits have proclaimed new highs in 2013.  If the central bankers continue their shell game, this will hold true baring a black swan event.

To take advantage of the “global asset inflation” strategy, investors can go global.

The most efficient way for most of us to accomplish this goal is to purchase a few exchange traded funds with exposure in different parts of the world that are participating in bubblenomics.

The first area to look at is Europe.  Since their debt and economic problems have not been solved, but only delayed, and your going to take market risk it makes sense to do so in a logical manner.  Germany is the strongest and most transparent market system and economy on the continent, therefore having exposure through EWG which is the ishare Germany exchange traded fund makes sense.

The next investment to own under this thesis is Japan.  Since they will try like heck to inflate their economy, and their stock market has been “bottoming” for well over a decade, the risk of owning EWJ seems fair.

A third idea is to go down under and take a look at EWA which is the Australian ETF.  Not only is Australia benefiting from the central bank policies and practices, but they are rich in natural resources which can provide an added benefit.

Exposure to the commodity space is just as simple and efficient.  We’re staying with GLD which provides direct exposure to the inflation trade (when it’s on) and also the “world is collapsing” trade when it’s on.  (Of course, tongue and cheek)  You know – that we know – these are convenient excuses for why an asset like gold may go up, not necessarily the reason.  Keep in mind, for every buyer there is a seller to match.

As a recap, the Global Inflation/Reflation trade is still on.  If your a buy and hold, set it and forget it investor, then I’ve given you a simple and effective way to participate.

Don’t lose sight of the wall of worry.  We still have to deal with the US debt ceiling debate, our own deficits, a slow growing economy and a host of other political and economic issues that can derail any rally in an instant.

Have one foot out the door if your going to be in the markets house for an extended stay, you never know when you’re not welcome any longer.


About the Author

Trading and investing in markets is second nature to some, but a mystery to others. The goal is to provide a forum where everyday people aspiring to be part time or full time traders will learn how view markets differently and profit beyond their wildest dreams.

David Frost