In the wake of monetary intervention by the European Central Bank and hints of stimulus by the US Federal Reserve, the market was last week expecting QE3. What it got was beyond even its dreams: QE3, 4, 5, 6, 7 so on and so forth as Ben Bernanke undertook to pump $US40 billion extra each month until unemployment rates return to normal (essentially forever!).
But what’s normal if the crisis isn’t cyclical, but structural? And what’s normal if jobs aren’t going because of a lack of credit, but because US consumers don’t want to live their lives chained to bank loans and unsustainable expectations? What’s normal when jobs aren’t just moving offshore for the sake of dollars, but are being replaced by robots and computers thanks to massive changes in technology?
The answers are uncertain, which is OK with us. As we’ve said before, in these extraordinary times successful investing is about being comfortable with tactics and strategies, short-term and long-term, bull markets and bear markets, not one or the other.
In today’s newsletter we therefore continue our binary approach. For the short term, as the world’s central banks shock and awe, we have provided a special nine page series of QE-linked trades, as well as analysis of the fallout for fixed-interest investors.
However, artificial stimulus will only work for so long as the macroeconomic fundamentals underpinning the global economy shift. So, for the longer term, we continue our series of dollar-exposed local stocks, specifically those that are leveraged to the next wave of Chinese development.
We also look at the Adelaide housing, how opportunity cost for buy and hold strategies is much higher than you think and, as you can see above, it is also a pleasure to update our model portfolios this week.
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