Have Central Banks Lost Credibility?

Definitely not. United States assets in comparison to the other developed markets are overvalued the most since at least 70 years.

So what can we choose apart from sitting on cash and precious metals? We can only search for extremely undervalued assets, preferably which pays regular, decent dividends.

Why we do not suggest that a reasonable investor should limit his exposure only to metals, cash and possibly shorts? First things first, because of the unbelievable determination of bankers and politicians who will take a lot of steps towards ultra-loose monetary policy, as long as they do not experience a severe meltdown that will really annoy citizens. For now, the recession is looming on the horizon, so the central banks tend to avoid buying assets. However, when sharp drops occur, QE will return and financial assets will be pumped up again.

This is not everything yet. Over the last few days, the promotion of negative interest rates in the news has begun. This is, of course, a separate theme, but it is worth noting that at February 4 an article appeared on the Fed San Francisco website which proved that the negative rates should have been introduced in the US 10 years ago as the response to the financial crisis. In addition, IMF, later on, published a text in which the issue of negative interest rates and the possible separation between cash and electronic money was referred to.

For us, it has been all arranged in one scenario. Central banks are currently trying to fill financial holes with ad-hoc stimulus, in the same time acknowledging that no normalization of their policies will take place. When the economic slowdown hit the markets with more force, and the additional credit together with the fake news about the US-China deal will not help, it will be decided to reduce interest rates just below zero. At the same time, the central banks again will start the asset purchases. We do not want to whet our appetites, but it is really hard for us to imagine that with such strong destruction of the currency, the precious metals prices will not shoot up.

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Moon Kil Woong 10 months ago Contributor's comment

Sadly Japan is in a QE hole they can pretty much never get out of without a serious collapse in their economy. Their economy is dependent on the funny liquidity and their markets are increasingly driven by it and the government. This is why their economy doesn't ever recover. Their people's future is not in their own hands thus it is hard for businesses to bet on what they can't control. Thus understandable no one wants to invest in growth.