Is this as a good as it gets?
Yes. And then it will get worse.
Have you heard of Quantitative Easing?
According to Wikipedia – Quantitative Easing (QE) is an unconventional monetary policy used by central banks to stimulate the national economy when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying financial assets from commerical banks and other private institutions, thus creating money and injecting a pre-determined quantity of money into the economy. This is distinguished from the more usual policy of buying or selling government bonds to change money supply, in order to keep market interest rates at a specified target value.
Expansionary monetary policy typically involves the central bank buying short-term government bonds in order to lower short-term market interest rates. However, when short-term interest rates are either at, or close to zero, normal monetary policy can no longer lower interest rates. Quantitative easing may then be used by the monetary authorities to further stimulate the economy by purchasing assets of longer maturity than only short-term government bonds, and thereby lowering longer-term interest rates further out on the yield curve. Quantitative easing raises the prices of the financial assets bought, which lowers their yield.
Quantitative easing can be used to help ensure that inflation does not fall below target. Risks include the policy being more effective than intended in acting against deflation – leading to higher inflation, or of not being effective enough if banks do not lend out the additional reserves.
President Obama’s plan is to hope that the artificial stimulation of the American economy will jump start the economy to a sustainable economic recovery at which time the stimulus can be withdrawn and the economy will continue to recover on its own.
We are hearing that the stimulus could gradually start to be withdrawn as soon as December 2013.
The trick is to let inflation gradually grow, gradually raise interest rates to combat inflation, have the economy continue to expand on its own – and get this all done In a manner that will not drive bond prices down, and collapse the stock market.
Failure of the Obama administration to pull this off will drive us into another recession.
Going into and through the summer of 2013 we will:
- Continue to maintain a relatively low, but fully invested exposure to the stock market.
- Pare down our exposure to Treasuries, and Corporate Bonds.
- Increase our exposure to commercial real estate and corporate real estate debt.
UPCOMING EDUCATIONAL PROGRAMS
May 15, 2013, 6:30pm Estate Planning 101 The Quadrant DTC
May 16, 2013, 12:00pm Estate Planning 101 The Quadrant DTC
Please call 303-355-0556 for reservations www.rockymountainestateplanning.com