Saturday, September 22, 2012
The topic of today's essay is quantitative easing, the global race to devalue currencies, and its aftermath...
European Central Bank (ECB) President Mario Draghi kicked off the latest round of easing two weeks ago, saying he would buy unlimited amounts of European sovereign debt. Then last week, Federal Reserve Chairman Ben Bernanke chimed in, saying the Fed would buy $40 billion of bonds every month into perpetuity.
When a central bank prints money, it devalues the currency. A cheap currency makes exports cheaper and makes it easier for a country to pay its debts. No country wants to maintain a strong currency while everyone else is printing money. It poses a massive economic disadvantage.
That's why we weren't surprised to see Japan's central bank – the Bank of Japan – announce a new round of quantitative easing today... The central bank warned of a "deceleration" in overseas economies and a "pause" in domestic growth.
The Bank of Japan said it will increase the size of its current purchase program by around 10 trillion yen ($126 billion) to 80 trillion yen. (It can't lower interest rates, as they're already near zero.) And it will extend the deadline for those purchases from June to December 31, 2013.
The Bank of Japan also did away with its minimum 0.1% bidding yield for Japanese government bonds and corporate bonds... In other words, Japanese yields can now go negative.
And as Steve Sjuggerud has been predicting since November 2010, the "Bernanke Asset Bubble" is now in full force. This globally coordinated money printing will push up the prices on assets of all kinds, including stocks, housing, and commodities.
The clear winner with all this money printing is gold... The precious metal hit $1,774 this week on the news... And gold futures for December delivery increased to $1,781.80 an ounce – the highest since February 29.
As central banks devalue global currencies, more and more people are turning to gold for protection. They're realizing that gold is "real money"... And more important, it's money that can't be created by the whim of a government.
When we first started writing about gold a decade ago, our view was a lonely one. Now, some of the world's largest investment banks (whose existence is dependent on easy-flowing credit) agree...
Earlier this week, Bank of America made a bold call, saying the Fed will double the size of its balance sheet within the next two years... and gold will hit $3,350 an ounce.
And German banking giant Deutsche Bank joined the "gold as money" crowd...
Their analysts, Daniel Brebner and Xiao Fu, say gold is seriously misunderstood... and their new target is $2,000 per ounce by early 2013. They say it's not "really a commodity at all." They see gold as money for one primary reason: "It is widely held by most of the world's largest central banks as a component of reserves."
In the second quarter of this year, central banks around the world bought 157.5 tons of gold. That's up 63% from the first quarter. It's up 138% since last year's second quarter.
In addition to owning gold... you can protect yourself from quantitative easing and the resulting inflation by owning assets that will pay you a rich annual income... Take Dan Ferris' World Dominating Dividend Growers, for instance. These are the dominant companies in their sectors. And they increase their dividends relentlessly.
Inflation is a rate of change. And as long as a company raises its dividend payment at a faster rate than inflation, your capital is protected.
Cigarette maker (and Extreme Value holding) Philip Morris International has raised its dividend by 13% a year since it was spun off from Altria Group in 2008.
And earlier this week, another Ferris favorite, Microsoft, raised its quarterly dividend by 15%. The extra $0.03-a-share quarterly payout will cost Microsoft around $1 billion a year. Since initiating a regular dividend in 2004, Microsoft has raised its dividend seven times. Last year, it increased its dividend 25%.
As regular readers know, Porter is bullish on natural gas. Because the energy source is so cheap today – $2.75 per million British thermal units (mmBtu) – people will find more and more use for the commodity. As a result, it will steal market share from oil as an energy source...
Earlier this week, Reuters reported OBAMA! delayed the release of a report on the economic impact of sending U.S. natural gas abroad. It was due in late summer, but now looks like it will be out after the November elections. The report could influence whether the U.S. approves more export facilities.
So far, the OBAMA! administration has approved just one project. In April this year, Stansberry's Investment Advisory pick Cheniere Energy got the green light for its Sabine Pass terminal.
Unlike oil, natural gas doesn't have a global market. Prices vary among countries and regions. In the U.S., it's super-cheap... selling (as we said) for between $2 and $3 per mmBtu. Europe pays much more for natural gas – $9-$10 per mmBtu. And in Asia, gas goes for almost $15 per mmBtu.
This difference represents a huge opportunity for U.S. producers to export their product to higher-paying markets... if they can get the gas there. Right now, the U.S. has no operating export facility.
Cheniere will be the first. It expects to start operating in 2015. Cheniere has already signed a 20-year supply agreement with the Spanish natural gas infrastructure and utility company Gas Natural. The Spanish company agreed to buy 3.5 million metric tons annually... beginning in 2017.
Chenier also struck a 20-year deal with the United Kingdom's oil and gas company BG Group. And other customers that are lined up include the Indian gas transmission and marketing company GAIL India Ltd and the Korea Gas Corp.
World-leading gas exporter Qatar and fast-growing Australia currently benefit from the high prices in Asia and Europe. And global prices will no doubt remain high until the U.S. can begin exports.
With only one terminal approved so far, Cheniere will provide U.S. producers the first and only hub to the world's market... Porter's subscribers are up 14% since he recommended it in July. And its position as the only government-approved natural gas exporter promises greater gains to come...
Porter has said the glut of natural gas supplies in the United States is part of a colossal shift in the global energy market and represents "the most important economic event of [his] life."
Last month, Porter released a series of reports describing every aspect of this phenomenon... which markets are being remade by cheap abundant oil and gas... what companies will benefit from the incredible new demand these resources are creating... and the best way to invest in these changes. To learn more about how to invest in America's new oil boom, click here.
Date Range:9/13/2012 to 9/20/2012
Date Range:9/13/2012 to 9/20/2012