Today Mario Draghi announced a $1T QE bond buying program for the Eurozone. As far as i can tell this means Lower Euro, Higher Dollar, Lower Oil. This whole era in markets and central planning is really rather extraordinary. There are these currency wars going on with central bankers around the world and every nation is in a tizzy to debase their currencies and destroy the purchasing power of their citizens savings in the name of increased exports. Of course the real reason for this ideology is not because inflation is a good thing for everyone. It is however good for debtors who love inflation because as the value of the currency falls so does the extent of their debts. Many nations around the world have increased the role of their governments beyond that which they are financially capable of supporting. Basically entire nations are taking on debt to support themselves.
A person would never be able to get away with this, but because they are governments with central banks, they have the power to create money out of thin air. Under normal circumstances such massive printing of currency would cause rampant inflation as each additional dollar printed erodes purchasing power. However, right now everybody is doing it and lowering their interest rates and printing money and trying to debase their currencies by inflating their money.
These are interesting times right now in America. We just got done with three QE programs and have printed more money than anyone and right now the value of our dollar is increasing enormously! The price of Gold is also increasing as the value of just about every other commodity is in free fall. You have to realize that it's all relative. You also have to realize that these fiat currencies are all imaginary, mostly digital digits these days. The things that can be purchased with them are not but keeping in mind that money is imaginary helps put into perspective the lunacy of the market and price discovery.
The dollar is increasing in value and our assets are also increasing in value. Things are getting cheaper for us. This deflation is exactly what we want as savers. The issue of the debt is a real one but nobody seems to care about the debt. I don't think it was ever intended to be paid off.
I am fairly certain that because some sort of Eurozone QE is confirmed for March that means that the USDollar continues higher against the Euro, that and an increase of supply will continue to put negative pressure on oil prices. I suspect that oil producing areas of America will be forced to cut exploration and may soon be completely priced out of the market and be forced to cease operations and lay off employees. The shockwaves of that should eventually start showing up in the data. Of course the market may continue to ignore any negative economic data and continue higher with an increasing global money supply from Europe.
It is fun to speculate but when you break it down the entire monetary fiat currency system is all imaginary, the market is absurd and impossible to predict. This is what I make of the current situation. I am positioned for a drop in oil prices, a rally in gold miners, an increase of volatility, and falling equities prices. Stay tuned!
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