Some Thoughts on QE
It's evident that Yellen's approach to monetary policy is consequently the same as Bernanke's, and that QE is here for the foreseeable future. With that in mind it's time to explore the Fed's actions in more detail.
Talk to anyone on Main Street, Wall Street, or the media, and you'll constantly hear the phrase "the Fed's printing money." But talk to Bernanke himself, and he'll tell you with a straight face that the Fed is not printing money. Where does this discrepancy in interpretation come from?
Some Thoughts on QE
With the Jefferson Conference wrapped up it's a pleasure to be back in sunny San Diego. Some observations below.
Robert Prechter of Elliott Wave International provided the lone argument for an impending deflationary scenario. He believes we are set up for a deflationary crash of greater magnitude than we saw during the financial crisis and likens the current environment to that which preceded the Great Depression. The emphasis of his argument is based on the current levels of debt. At this point the debt burden is so great that it's unpayable, regardless of what anyone does - including central banks. As a result he believes the economy will go the way of all over-indebtedness, which is deflation. An over-leverged economy forced to cut back on spending and investment will result in declining prices, driving the real value of debt upward. This places even more stress on the system and exacerbates a vicious cycle.
This week I am in New Orleans at the Jefferson Investment Conference. As with most, this conference has a theme and it can be summarized as follows: Continued QE will eventually manifest itself through devaluation of the dollar - driving the price of precious metals and other tangible assets skyward.
The distaste of Fed policies is ubiquitous, but I am pleasantly surprised to find most have accepted what is, and turned their attention to profiting from the wave of liquidity.
The Fractal Nature of Price Trends - Part II
Last week we explored the concepts of fractals and Chaos Theory, and I probably left most people scratching their heads. Thanks for bearing with me. There was a point to it all, and we'll get to that now. It might help to re-read (or read for the first time if you missed it) that site before continuing below. It's available in our archives, posted on November 1, 2013.
Understand how market participants think -- and you will understand which direction the markets will head. With that in mind let's take a look at another cognitive bias, hyperbolic discounting. As a reminder, cognitive biases are established tendencies of individuals to deviate from normal rationality under certain circumstances. For a broader description, please see the Daily Remarks posted on October 21, 2013.
Ever wonder why so many people these days are focused on short-term trading as opposed to long-term investing? Or why it's so hard to get younger individuals to effectively plan and save for retirement? Hyperbolic discounting can help us understand these phenomena.