e: “QE plan leaves investors with nowhere to hide,” Pensions & Investments, Page 1, Aug. 5:
Quantitative easing can't go on forever. In light of the June jitters repercussion from Ben Bernanke's tapering comment, it would appear that investors expect real interest rates to soar when the easing ends. This expectation explains the precipitous decline in gold prices (as well as Treasury inflation-protected securities), indicating deflation fears, coupled with increases in bond yields. If yields increase while inflation decreases, we will have increases in real (inflation-adjusted) yields.
I personally don't think we will see large increases in the real interest rate on bonds, but we will see a return to positive real interest rates. We will also see serious increases in inflation. In other words, both inflation and real interest rates will increase. Accordingly, I see a long-term recovery in gold but not bonds, and not cash (which will devalue in the face of inflation). What is your outlook?
Quantitative easing and the credit crisis have taken our attention away from the massive debt this country cannot afford, at least not in today's dollars. For a humorous but sobering reminder see the “Saturday Night Live” parody titled “Sino American relations,” showing China's concern about the ability of the U.S. to repay its debt. Add the aging population demographic, and we've got serious headwinds for many U.S. companies and the economy.
President, PPCA Inc.
Target Date Solutions
San Clemente, Calif.