Is QE4 All That’s Left?

There have been a couple of core themes of our daily writings with regard to investment and protection of wealth.  Firstly is that since the GFC we have seen global central banks artificially stimulating financial markets and property with printed money and near zero interest rates creating asset bubbles beyond fundamentals on an unprecedented scale.  Secondly, that all comes via debt, the very catalyst of the GFC, and not just a little, but up 40% and on any measure at all-time record highs.  Not convinced?....

Deutsche Bank – Germany’s largest bank and one of the largest in the world had this to say on the weekend:

“The fragility of this artificially manipulated financial system was exposed over the last couple of days of last week. It all ended with the S&P 500 falling -3.19% on Friday – its worst day since November 9th 2011.”

Sound familiar?

Or from Bridgewater – the world’s largest hedge fund in a note to clients:

“That's where we find ourselves now—i.e., interest rates around the world are at or near 0%, spreads are relatively narrow (because asset prices have been pushed up) and debt levels are high.  As a result, the ability of central banks to ease is limited, at a time when the risks are more on the downside than the upside and most people have a dangerous long bias.  Said differently, the risks of the world being at or near the end of its long-term debt cycle are significant.”

You see Bridgewater, headed by legendary Ray Dalio, are seeing through the Fed’s tightening talk as either ill-conceived (based on short term cycles not long term) or verbal massaging.  Indeed they see things going so badly soon that the Fed will need to ease not tighten.  With rates at zero already that leaves only one tool… more Quantitative Easing.  For newcomers, that is printing money by buying your own Treasury bonds (Gov debt).  They already have over $4t on their balance sheet and it clearly isn’t working.  Bridgewater finished their above advice to clients with this:

"We Believe That the Next Big Fed Move Will Be to Ease (Via QE) Rather Than to Tighten"

Should QE4 really happen many believe that is when all faith will be lost and you will see gold truly take-off.  China eased further yesterday and that stimulus didn’t even last a full day on Wall Street, ending back in the red after the initial big rally.  Not coincidentally then Ray Dalio had this to say earlier this year:

“If you don’t own gold there is no sensible reason other than you don’t know history or you don’t know the economics of it”