A quick recap as at Oct. 5th 2010
As I wrote before:
1.-I still see a much, much clearer landscape supporting gold than stocks. Why? Because the rise in gold is based on the uncoordinated monetary policies, that generate relative price changes affecting stocks in different ways, but affecitng gold unanimously (refer: "The Yen intervention supports gold, on Sept 17th: www.sibileau.com/martin/2010/09/17 ).
2.-The BOJ just announced they will consider quantitative easing of their own to depreciate the Yen. This is what I suggested they should do, because buying USDs was a losing proposition. I expect that the Yen will depreciate as fast as this policy is implemented ("...What would we have done to weaken the Yen, had we been asked? We would have not intervened the FX market. We would have simply issued bills to the BOJ and with the Yen, we would have bought the most toxic Japanese assets out there, making sure they are really, really, uglier than Greek debt or US subprime mortgages!..." Sep 23rd, at: www.sibileau.com/martin/2010/09/23)
3.-On my next letter/s, I will address where financials, with Basel III risk behind, are left with, should QE 2 unfold. For those interested in the subject, Ludwig Von Mises wrote a masterpiece on this in "Human Action", Chapter XXII (very clear and simple:http://mises.org/Books//humanaction.pdf ). But essentially, I think we must not be confused on this point: QE2 will be structurally very different from QE1. Under QE1, the Fed funded stocks (i.e. mortgages, a finite amount of Treasuries), while under QE2, the Fed will be funding flows (i.e. deficits; refer: http://en.wikipedia.org/wiki/Stock_and_flow ), and unlike the ECB, it certainly doesn't intend to sterilize them. Now, think about this: If banks are flooding with deposits now and there isn't enough lending, what do you think will happen if CPI picks up and deposits begin to shrink, as people need them to offset the loss in purchasing power? This is even more supportive of gold!!!!
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