2010-10-30 Licence to print
The term in fashion today is quantitative easing. In English, in simply means printing money. Yes, the Federal Reserve in the US is printing money. Again. Well, that is nothing new, you say; they have been doing that all along. You’re right. It’s an easy thing to do.
Creating a bigger quantity of cash to ease the debt problem. The quantity now is $60 billion. It doesn’t take a genius to figure out that this will cause inflation. That’s why China’s minister of commerce, Chen Deming, voiced his annoyance over the rising challenge of an “imported inflation” that his country now faced. Chen said that the US dollar issuance had gotten “out of control”.
Best-selling author Jim Rogers chipped in to say that Ben Bernanke, the Fed Chairman, doesn’t know anything about economics or currency; he just knows how to print money.
With his latest move, Ben Bernanke has pushed the bubbles to emerging markets, as we have seen the unrelenting spikes in property and stock prices. Stock markets in the Asian region are seeing strong bull runs, and Asian currencies have been appreciating as the value of the US dollar becomes depressed.
Cheap US money has also caused prices of commodities such as crude oil, gold and silver to be on the rise.
With such “irresponsible behaviour” as China describes, a crash would be inevitable. However, for the time being, everyone is happy with the good bull run especially in the stock market. In Malaysia, most people expect the KLCI to surpass its historical high of more than 1,526 points soon. As with previous crashes, nobody is running right now. “Now is the time to make money,” they say.
At the rate it is going, the bull run may go on for a long time. But then again, no one can say for sure that a crash will not happen tomorrow. If you are an investor, make sure you do your eventuality planning. A good strategy that my options guru taught me was to sell half your stakes and lock in the profits, while letting the remaining half ride the wave to the max. Good luck, and may the Force be with us when the Crash comes…
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