Welcome to the global currency war
Unlimited easing by the three major central banks opens the door to competitive devaluations and stagflation.
Mark your calendars. Today is the day the global currency war broke out into the open. This after the Bank of Japan announced it would ramp up its monetary policy stimulus efforts -- on an unlimited basis -- until it achieves a 2% inflation target.
Now, all three major central banks have committed to open ended easing.
As central banks ramp up one last time, the end game for all this -- given the fiscal austerity, budget fights, and policy turmoil just ahead -- is higher inflation combined with economic stagnation. This is the dreaded "stagflation" outcome that is the bane of central bankers, especially the aggressive, overconfident ones that are in charge right now. Here's why.
Russian officials warned that other countries may follow Japan's efforts to weaken the yen -- something that reverberated after the outgoing head of the Eurogroup of finance ministers and the Prime Minister of Luxembourg said the euro was "dangerously high." Officials and Norway and Sweden also expressed concern. Other officials, from the head of the Bank of England to policymakers in Korea and Australia, have all recently voiced their concern about what's happening.
It's no wonder that export-oriented German factories are suffering from a drop in output.
The surge of cheap money stands in contrast to an ongoing deterioration in the economic data. The Philly Fed regional manufacturing survey came in well below expectations this morning -- the latest datapoint pulling down the Citigroup Economic Surprise Index.
The index, which I've frequently highlighted, is about to fall into negative territory for the first time since early 2012 as the hard data continues to disappoint lofty Wall Street expectations. That's coincided with weak performance for the stock market.
If inflation kicks higher because of risking geo-political risks in oil producing regions -- illustrated by the rise of AQIM in North Africa -- the market's theme of "central banks will solve everything" will be in jeopardy.
What's really scary in all this is that if we tip into a recession now -- as Japan and Europe have already done -- there will be no easy salves. Washington is embroiled in a struggle over how much fiscal austerity to dole out. Who gets tax hikes? What programs should be cut?
If the Fed's hands are tied, with more hawkish members there already doubting the effectiveness of its ongoing QE3 and QE4 initiatives, we face the prospect of higher inflation, tighter money, and less government support. All in the context of a loss of cooperation at the G20 level as the major economies fight to boost exports via competitive currency devaluation -- or "beggar thy neighbor" policies -- all at the same time.
As the race to debase accelerates, it will boost the fortunes of precious metals in a big way as investors scramble for alternative stores of value. No surprise then that both gold and silver are quietly moving to the upper end of recent trading ranges in preparation for what looks to be a breakout uptrend.
Be sure to check out his new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at email@example.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
Nice little rally before the close....We'll take it any day...Google and IBM just reported decent numbers...Waiting on the calls...We will see what happens tomorrow
Everything in this article is technically true.
It is one of the MOST BIASED articles that I have ever read on financial web site.
Our Fed starting shooting at people years ago. Now, that they have been wounded and are finally starting to shoot back, that is the start of the war? Seriously.
If I hit you in face with my fist five or six times, does the fight officially start when you finally hit back?
You cannot Print and Tax your way to prosperity. You cannot Borrow and Spend your way out of debt, no matter what the lazy, arrogant, corrupt Imbecile Obama and his Donkey minions tell you...
America voted for 4 more years of economic Malaise... Enjoy!
Americans are excellent at spotting trends...
We arming ourselves at an alarming rate...
We are buying gold and silver outpacing our governments ability to mint the coins...
People see massive money printing and government debt, and wonder about the value of the dollar...
Sell Long term bonds, avoid real estate, buy guns/ammo, specie, and farm land...
Do not hold dollars or CD's... Buy stocks, especially foreign stocks...
Buy foreign currencies...
We are heading for a depression of epic proportions... 16.5 trillion at 5% interest is 825 billion or more interest than our ENTIRE Defense budget. Raising interest rates cannot be done now. This means we must continue to devalue the dollar. Americans can see this pretty clearly...
NTU,.... I believe certain Funds or Government pots have been raided many times for different reasons.??
Think they are making a big deal out of it, because ONCE again, it is Obama's Admin, he's black..
AND THEY ALL LOST........
Let me see that B..C.. again....please.
And another front, some were calling for Gold at $2000 for the last 5-6 years, NEVER happened.
We got close, what last year or 2010 in the $19s, but NO CIGAR...
Who knows when...?? Forever is forever.
brutusbear......You are talking to yourself, sometimes like I do....
And usually it isn't good for us....
piss on casinos..!!
MORE ON MSN MONEY
Copyright © 2013 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The Fed may start tapering in just a few months. Here are a few of the likely winners and losers.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.