By
Gary Gordon
:
Back on September 14, the Federal Reserve Chairman Ben Bernanke
shocked and "awe-struck" the investing world. The U.S. Fed did not
merely embark on another bond-buying binge like they had in
previous versions of quantitative easing (i.e., QE1, QE2). Whereas
the earlier iterations had specific dates, "QE3″ is open-ended.
Bernanke has made it clear that the Fed will continue to create
dollars electronically and then purchase mortgage-backed bonds for
as long as it takes to accomplish their objective. (What's the
objective again? Full employment? Price stability a la "acceptable"
inflation?)
Over the course of the last four years, the Fed has essentially
kept interest rates at negligible levels. The Fed has also bought
treasuries and mortgage-backed bonds, as well as rolled short-dated
maturities into longer-dated maturities. And they've done so with
dollars they created out of thin air.
The actions have resulted in consistently declining mortgage
rates, higher stock and commodity prices, as well as recent home
price stabilization. Those haven't been bad things for investors.
Not in the short-term, anyway.
Still, is the "wealth effect" actually creating jobs?
If you listen to Bernanke speak, he believes the Fed has
succeeded in stimulating job growth through an increase in real
estate-related activity. However, the evidence that lower interest
rates are actually enhancing the job picture is suspect at
best.
Consider the "stats" from initial Federal Reserve QE policy
(circa 11/08) through the end of September (09/12). The most
reliable statistic for employment is the labor force participation
rate, which tells us the percentage of working-age adults who are
employed. That number sits near a 30-year low at 63.6%… which is
certainly not better than when the Fed first began its QE policies
several years ago.
Didn't the Bureau of Labor Statistics ((BLS)) just report that
the U.S. created 114,000 new jobs in September, and that the
unemployment rate fell from 8.1% to 7.8%? Doesn't that suggest that
the Fed's monetary policies are beginning to have a positive
impact?
While the headline unemployment rate may help the White House
politically, the number would be 9.8% when one factors in the
number of working-aged people who have stopped participating.
They're neither looking for employment nor receiving unemployment
compensation. And when one follows other labor statistic measures
like U-6 - measures that chronicle the underemployed - the number
is 14.7%.
Summed up in another way, most measures of employment have
gotten worse since QE first began in November of 2008. Even the
headline number of 7.8% is at the same place as when President
Obama started office in 01/09. Most notably, the simple fact that
the Federal Reserve decided to enact an open-ended QE policy this
past September tells everyone that the employment situation is
bleak. The only question is whether or not the Fed is helping or
hurting with its monetary policy.
Actually, there are additional questions for investors. What
types of assets should you acquire in a currency-devaluing
environment characterized by commodity price inflation and marginal
economic growth?
First, I think it is important to
minimize risk with inflation-fighters
.
Vanguard REIT
(
VNQ
) as well as
iShares Gold
(
IAU
) often do well, even when consumer prices are tame.
Second, those who can tolerate volatility better would do well
to look at
Real Asset ETFs
. Consider
Guggenheim Timber
(
CUT
) and/or
First Trust Natural Gas
(
FCG
).
Third, I'm a big believer that the world's second largest
economy, China, has far more policy wiggle room than the European
Union or the United States. This is not to suggest that the best
way to profit from monetary and fiscal stimulus on the mainland
would come from exclusively investing there. However, it does
explain why
Asian Pacific ETFs are relative strength
standouts
. Take a look at
iShares MSCI Asia excl Japan
(
AAXJ
) or
iShares MSCI Malaysia
(EWM).
(click image to enlarge)
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Disclosure:
Gary Gordon, MS, CFP is the president of Pacific Park Financial,
Inc., a Registered Investment Adviser with the SEC. Gary Gordon,
Pacific Park Financial, Inc, and/or its clients may hold positions
in the ETFs, mutual funds, and/or any investment asset mentioned
above. The commentary does not constitute individualized investment
advice. The opinions offered herein are not personalized
recommendations to buy, sell or hold securities. At times, issuers
of exchange-traded products compensate Pacific Park Financial, Inc.
or its subsidiaries for advertising at the ETF Expert web site. ETF
Expert content is created independently of any advertising
relationships.
See also
REITs Are Bubblicious, Especially The Dividends
That Are Repetitious
on seekingalpha.com