Billionaire power broker Paul Singer thinks easy money policies have failed miserably…
Singer founded Elliot Management, a hedge fund that manages $27 billion. He generated an average annual return of 14% from 1977 to 2012. Remarkably, he only had two down years during that thirty-five year stretch.
Like us, Singer is a big critic of easy money policies. Last month, he said the Fed’s easy money policies have “levitated” stock and bond prices. And this week, Singer warned that reckless monetary policies have set us up for another serious financial crash…
In a letter to his clients, Singer criticized the “obvious failure of monetary extremism” to grow the economy. He warned of “the risks that may exist either in the continuation of the monetary experiment or in its ultimate unwinding.”
Casey readers know the Federal Reserve has been conducting a “monetary experiment” since the last financial crisis. The Fed has held its key interest near zero for the last seven years.This has never been done in modern U.S. history.
The Fed has also launched three rounds of quantitative easing (QE) since 2008. QE is when a central bank pumps cash into the financial system. It’s basically another term for money printing. At this point, the Fed has used QE to inject $3.5 trillion into the U.S. financial system.
• Singer is watching the crises in emerging markets very closely…
China’s economy just had its worst quarterly growth since the Great Recession. Brazil’s currency and stock market have imploded. And while it’s not an emerging market, the bad news we got yesterday from South Korea’s manufacturing sector is signaling a global recession.
Singer thinks these problems could reach the U.S. soon. If that happens, he’s worried about the government’s response.
They will not remain passive in the face of a renewed global recession and/or financial crisis… What policymakers will do, in all likelihood, is hope and pray, and when that fails, they will likely double down on monetary extremism. This landscape is essentially baked, unless you think that sometime in the near future the global economy will turn higher…
Since interest rates in the U.S. are already near zero, doubling down on “monetary extremism” can only mean one thing: more QE. At this point, it’s the only way to keep the easy money flowing.
• Three rounds of money printing have already made many assets absurdly expensive…
The S&P 500 has gained 211% since bottoming in March 2009…U.S. commercial property prices hit a new all-time high in August…and prices for Treasuries, municipal bonds, and corporate bonds are also near record highs.
Nevertheless, the Fed’s easy money policies haven’t helped the actual U.S. economy.
In many ways, the economy is now in worse shape than it was before the last crisis. The real median annual income in the United States has dropped from $57,795 in 2008 to $55,218 today. There are also twice as many Americans on food stamps today than before the financial crisis.
To the average Joe, this doesn’t feel at all like an economic recovery…
Easy money policies have only benefited people who own significant amounts of stocks, bonds, and investment property. In his recent letter, Singer said easy money policies are actually designed to serve the rich.
It is very odd and dangerous that governments, satisfied with policies which, by raising asset prices (stocks, bonds, real estate, high-end art), are seemingly designed to make the rich richer…
• Seven years of easy money have encouraged all sorts of reckless financial decisions…
Americans have borrowed trillions of dollars to buy stocks, bonds, houses, cars, and college educations.
The Bank of International Settlements reports U.S. household, corporate, and government debt jumped from 218% of gross domestic product in 2007 to 239% last year.
Like us, Singer thinks this financial experiment will end badly. He’s on record saying that investors today think central bankers can cure every economic problem…a phenomenon he calls the “cult of central banking.”
However, investors will eventually lose confidence in the cult of central banking. When that day comes, Singer expects the fallout will be disastrous.
…bond markets could collapse in a flight from paper money; stock markets could collapse…commodities markets could drop further (in recession) then soar (with a flight from paper money); inflation could plunge, and then skyrocket…gold prices could spike.
• Like us, Singer thinks gold prices could skyrocket because gold is “real money”…
It’s also the ultimate form of wealth insurance.
People have used gold as money for thousands of years. It has protected wealth through every kind of financial crisis imaginable. It can do the same thing for you when the next crisis hits.
This is why every investor should own physical gold. It’s the first step every person should take to safeguard his wealth. But there are many another straightforward strategies you can use to make sure you weather the next financial storm.
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Chart of the Day
Groupon’s (GRPN) stock just had its worst day in years…
Groupon runs an online marketplace for coupons and special deals. There was a lot of hubbub when the stock went public in 2011. But it hasn’t delivered…
Today’s chart shows the stock’s performance since the beginning of July. Yesterday, Groupon’s stock crashed 26% when the company released bad third-quarter results. It posted a net loss of $28 million, and sales fell for the second quarter in a row.
Groupon’s stock is now down 64% this year. It’s fallen 87% since it went public in 2011. E.B. Tucker, editor of The Casey Report, recommends staying away from Groupon stock.
Groupon is in big trouble. It’s a coupon business. And it’s headed the way of the classified ad section of your local paper…
Digital payments will kill this business. Soon, your credit card will be integrated with your mobile phone. This will make it easy for companies to target you with ads. MasterCard, Visa, and American Express will sell this “window space” to giant advertisers.
The local donut shop will still use Groupon. These businesses can troll the bottom of the economy for pennies…Groupon will be a penny stock.
Delray Beach, Florida
November 5, 2015