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Have you heard the good news?
Stocks are up again. Skies above are clear again.
And we have the world's benevolent central bankers to thank.
A headline from the Associated Press this morning tells the tale:
As commodity investors, we should be cautiously, reverentially pleased. When the printing presses run, our commodity investments benefit.
As a commodity analyst, I base my investment thesis almost entirely on the idea that central bankers will print currencies into oblivion. This latest announcement to "provide liquidity" is just another data point that proves I'm on the right track.
Central bankers only know how to print, or as they call it: to ease quantitatively, or to inject liquidity, to provide credit, to make lending cheaper, to keep interest rates low, etc.
No matter what they call it, the banker apologists will scream and jump up and down that it's not printing money, exactly, per se.
But I'm not interested in linguistic acrobatics. Easy money policy, or whatever you want to call it, while not necessarily running paper through a printing press has the exact same consequence of weakening the currency and all of the other negative side effects.
And it seems strange that central bankers would be hell-bent for leather to continually devalue their currencies. Especially since it could be argued that easy money and all of its trappings are kind of the root cause of our financial problems.
But if you look at who really benefits from a weak money policy, it becomes pretty clear why central banks seem unable to do anything else.
You already know that governments around the world are in huge amounts of debt. Most of these indebted governments are far beyond the point of no return. That is, they've assumed more debt than any entity has ever dug itself out from.
So it's a question of how and when they'll default on this debt.
And the best way for a government to default on debt is to print up more of the units of account that the debt is denominated in.
This debt will go somewhere. It will be outright defaulted on as bondholders are asked to take haircuts (as in Greece and soon, Italy, Portugal, Spain, etc.) – but in the case of the United States, it will be inflated away with easier money policies – until the debt is rendered irrelevant, or until the dollar itself becomes irrelevant.
In any event, the easing will likely have the effect of boosting commodities. We've already seen that phenomenon this morning, with oil up over 1% and gold up almost 2%.
I'm not terribly interested in daily price movements – but it is nice to see a data point so obviously line up with my thesis.
It's also nice to see that played out in my portfolio. My biggest gains are still in gold and silver, and I'm letting those holdings ride for the exact reasons I outline in today's letter.
Central bankers have a gun to their head. They have to print, because it's all they can do to alleviate their countries' debt problems.
Let them print. Let other investors be fooled into chasing the broad stock market. Hold your commodity investments, and look for any weakness as a buying opportunity.
We are nowhere close to a "solution" to currency crises around the globe. Invest accordingly.
Good investing,
Kevin McElroy
Editor
Resource Prospector