[T.S.R:16818] The Only Fool Left Standing Is Bernanke

There's an inarguable link between the 73 per cent rise in commodities price over the past two years and the endless printing of US Dollars by the Fed. While it seems that the US is growing, the World around is collapsing. The only fool left standing is Bernanke-now ready with QE3 and QE4. 

There is a direct and inarguable link between rising asset and commodity prices and central bank money-printing. And while the following chart may not look quite as dramatic (due to the y axis scale) more proof is available if you look at the Index of Commodity Prices from the Reserve Bank of Australia (RBA):

 

Source: RBA

The blue line is commodity prices in Aussie dollars. The green line is commodity prices in US dollars. And the red line is Special Drawing Rights (SDRs), this is a basket of currencies used by the International Monetary Fund.

As you can see, in US dollar and SDR terms, commodity prices have gained about 73% since early 2009... roughly when the US Federal Reserve announced its first quantitative easing programme.

The beginning of QE2 late last year then helped give commodity prices another kick-along. And if QE2 doesn't do the trick, then get ready for QE3. Here's what US Federal Reserve chairman Ben Bernanke told media on Thursday in the US:

"If output is too low and unemployment is too high, then that would be a situation that requires more stimulus."

It seems the Fed chairman and most others in the markets still don't get it. They see higher US corporate earnings, but can't figure out why this isn't translating into lower unemployment.

The reason is simple. It goes something like this...

The US Fed prints a lot of money. This devalues the US dollar. The devaluation of the US dollar increases in US dollar terms the foreign-earned income by US companies. This is reported as higher revenues and higher profits by US companies.

But here's the problem. Those US dollars are actually worth less than before. While the immediate impact shows an increase in revenues and earnings, when those same US companies need to reinvest in their business - buy more supplies, machinery, etc - they'll find costs have risen.

Even if they pay out an increased dividend, shareholders will find the higher income won't match the increased costs of goods and services.

By the time investors spend the money or businesses reinvest it, the windfall they thought they'd gained has gone.

And when your costs increase, especially raw materials which remember are up 73% in US dollar terms, odds are businesses will have to get by without hiring more workers. They may actually have to fire workers if costs have risen.

Pity those businesses that have been fooled into increasing investment in their firm in the false belief that the good times are back. They've paid out higher costs thinking customers will spend... only they won't... or not enough to justify the increased business investment.

The fact is central bank money printing isn't helping the US economy. It's damaging it. It's creating inflation. Inflation that gives the impression of increased wealth and increased profits.

But it's all a cruel mirage.

And Bernanke's solution for "more stimulus" will just make this even worse.

So the analysts surveyed by the AFR could be right. And so could the guys and girls at Moody's and Standard & Poor's - stock prices and commodity prices could move higher, but it won't create any extra wealth for the economy.

All it will do is keep more people out of work, drive costs higher and lead to more blood on the streets.

The way the Federal Reserve is going it won't be rioting on the streets of Tunis and Cairo it'll have to worry about. The rioting will be on the streets of Baltimore and Detroit. Perhaps then Bernanke and his cronies may stop to think about the damage they're causing... or perhaps they'll decide that QE4 will fix it.

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

--
For Anything related with Stock market be Online at
http://www.niftyviews.com/
 
Get free updates on your mobile phone. Sms "Join TSR " and send to 09223492234
 
FOR TRIAL STOCK/NIFTY/OPTION CALLS
 
 
You received this message because you are subscribed to Google Group "STOCKRESEARCHER" group.
To post to this group, send an email to STOCKRESEARCHER@googlegroups.com
 
To unsubscribe email
Stockresearcher-unsubscribe@googlegroups.com
 
for more info visit
http://groups.google.com/group/STOCKRESEARCHER?hl=en-GB
.
This is Not a Spam Mail.
Disclaimer :-
"The opinions expressed by the members on this board are based on
their individual experience and perceptions and to share information
with other members with the best of intentions to help fellow members
in investment decisions as equity investment is a risky venture."