I wonder how many original thoughts the central bankers of the G-7 nations generate.
Quantitative easing was the U.S. Federal Reserve’s mantra to fix the ills of a collapsing economy. While I would love to give credit to this ill-conceived policy move to Fed Chairman Ben Bernanke, it was merely a copy of what Japan had been doing for two decades.
Do you know the definition of insanity?
Insanity: doing the same thing over and over again and expecting different results.
When Japan failed with its perpetual quantitative easing for two decades, I am not sure what Bernanke believed he could do better or different to make it successful in the United States.
Now the Bank of Japan (BOJ) has returned the favor by copying Bernanke. A couple of months ago the Fed announced a round of QE with an unlimited amount of bond buying with no defined time limits. The European Central Bank soon followed suit and announced a similar program of unlimited bond buying.
And Japan just announced the same program. The only twist is that the program will be launched in January 2014, which has underwhelmed the markets.
If the BOJ wanted to announce its latest QE insanity, why announce it now but wait until January 2014 to execute it?
I would call this stale wine in a very old bottle. It makes no sense at all.
However, as a result of this strange twist, the Japanese yen is beginning to gain strength. As I predicted a couple of weeks ago, the BOJ will not be able to meet the overactive demands of the new Japanese Prime Minister and the markets. It will want to exert its influence and indicate that it is independent. It has now done that and as a result, the weakness previously observed in the yen is now gone.
If you had bought the yen back when I suggested it, you should have a handsome gain in the trade within two weeks.
Over in India, I am definitely getting attracted to the latest government policy move. This new move will have a significant impact on the Indian stock markets. India has announced a 2 percent increase in the duty on the imports of gold. Outside the oil import bill, the import of gold was the largest drain on the exchequer.
With this move, the country will not only reduce the import of gold, but also gain revenue while easing the deficits. In addition, Indians most likely will reduce their consumption in gold and will transmit some of that cash into stock investments. The now nicely positioned India stocks will start gaining at a faster pace due to this action.
One set of central banks (the Fed, ECB and BOJ) announces artificial stimulus to grease the tracks and aid the stock markets, rather than embracing structural and deficit reforms. On the other hand, India’s smart policy moves to reduce deficits happen to boost the stock markets as well.
I would invest in the stock markets of the latter before I invest in the former’s stocks.
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