Fed Blows It… Assets to Soar
The Fed Blows It… Assets to Soar. But this is dangerous for ordinary investors. That’s the warning from one of the world’s best ever hedge fund investors. But if asset prices are increasing, how can that be bad?
In an interview with CNBC’s Squawk Box, Stanley Druckenmiller, the investor, who with George Soros, famously shorted the British Pound in the early 1990’s, breaking the Bank of England and collecting over $1 billion in profits, claims that the Federal Reserve’s policy of low interest rates and higher asset prices is re-distributing wealth from the poor and giving to the rich.
But he also claimed that this wealth re-distribution will not end well.
In an interview following the Federal Reserve’s decision not to tapper Quantitative Easing last week, Druckenmiller said…
“Who owns assets—the rich, the billionaires. You think Warren Buffett hates this stuff? You think I hate this stuff? I had a very good day yesterday.”
Druckenmiller, whose net worth is estimated at more than $2 billion, said that the intention of the Fed’s policy is that the rich will spend their wealth and create jobs—essentially betting on “trickle-down economics.”
“I mean, maybe this trickle-down monetary policy that gives money to billionaires and hopefully we go spend it is going to work,” he said. “But it hasn’t worked for five years.”
Central banks around the world, including Australia’s Reserve Bank, have been in an easing phase for at least the past 2 years and in some cases, such as the US, extraordinary measures have been taken for much longer. In the US the Federal Reserve’s Quantitative Easing policy essentially creates money out of thin air for the purchase of US government bonds and bids up bond prices so as to lower interest rates, all with the aim to stimulate lending and borrowing, and in turn, economic activity.
According to Druckenmiller, this has and will continue to allow for an environment for assets like stocks, real estate and possibly even gold to rise well beyond reasonable expectations. In the end this will be unlikely to end well but in the meantime assets will likely soar.
In an unexpected move not to reduce the amount of money being printed, Federal Reserve chairman, Ben Bernanke, missed an opportunity last week to reduce the amount of stimulus, According to Druckenmiller.
The Wall Street Journal called it “a large failure of nerve.”
The message is clear, while we may still be uncertain about the future and even fearful, it is looking increasingly likely that this rally in stocks and real estate around the world will continue for the time being, possibly into 2015 or 2016.
Make hay while the sun is shining, but have strategies in place to protect your capital when the time comes. If you don’t have a capital protection plan in place, remain invested but start thinking about how you will plan your exit when the time is right.
If all this makes you feel just a little uncomfortable or slightly beyond you, or you don’t have the time to manage these risks and still profit, contact United Global Capital today and speak with one of our financial strategists for a No Cost, No Obligation consultation on 03 8657 7640 or email [email protected].
Here’s to your long term health and wealth.
The information contained in this report is General in nature and has been prepared without taking into account your objectives, financial situation and needs.