Money Printing Ends in 12 Days… Is Your Portfolio Prepared?

money supply, printing money, Federal Reserve, Ben Bernanke

The S&P 500 peaked six weeks ago on April 29th and has since fallen 6.8%.

The question we should all be asking ourselves is, 

"What happened the last time Chairman Bernanke stopped printing money?"

Before I answer that question along with you, let me clue you in on what my proprietary short-term indicator on the S&P 500 is signaling.

IT'S FLASHING RED.

What this means = this market has more downward than upward momentum and with Money Printing 2.0 ending in 13 days all bets are off.

The last time my proprietary indicator flashed red was May 7th 2010.

If we jump into the 'way-back-machine' and return to May 7th 2010, you will remember that Chairman Bernanke had just ended his $1.25 trillion money printing jamboree AND started to shrink the Fed’s balance sheet. 

60 days after Bernanke ended Money Printing 1.0 (QE1) and shrunk the Fed’s balance sheet, the stock market had fallen -16%. 

Now you just might be asking, “RC, why did the stock market only fall 16%, why didn’t it fall…say 36%, or even 72%?"

Good question. 

Chairman Bernanke came out just after that -16% fall (in August) to announce another round of money printing. He announced that he would print another $100 billion a month for six more months starting in November. 

PLUS he would rollover another $300 billion of debt AND he would stop shrinking the balance sheet of the Fed.

So all together Bernanke would print another $900 billion!

So guess what happens to the stock market when the man with the US Dollar printing press starts printing hundreds of billions of dollars again?

Drum roll…the market stopped falling. In fact it went up 30% from the lows of August, (when he made that announcement) to April 29th 2011 (49 days ago).

The market stopped falling because Bernanke printed $900,000,000,000 US Dollars! 

Since April 29th the stock market has fallen 6.8% AND my proprietary short-term indicator signaled a “red light mode”, just like in May of 2010.

Let us put this into perspective. Today USA, Inc. has a:

1) zero interest rate policy (to help too-big-to-fail banks).

2) 9.10% U3 unemployment rate

3) 17% U6 employment rate (total unemployment + underemployment).

4) $2,000,000,000,000 additional US Dollars floating around the world.

5) Hundreds of billions in credits and handouts. Hey remember the First Time Home Buyer Tax Credit for $8,000…or how about the Cash for Clunkers? Complete waste.

6) $1.6 trillion annual government deficit.

7) Gigantic companies like General Electric paying zero taxes.

8 ) 45,000,000 people on food stamps (that is one in seven Americans).

One doesn’t have to wonder too much what was pushing up the stock market.

Could the trillions of dollars that got printed out of thin air have done it? Yeah, maybe…you think?

Okay, I’ve heard all of this before RC. So tell me what to do. Tell me what happened last time Bernanke stopped printing so I can understand better this time what I might want to consider.

Great, let’s get down to details.

The last time Bernanke stopped printing money the market fell. So RC, “What else fell (other than the stock market) and what DIDN’T?”

Said differently, “Where did the money flow?”

Great question!

The last time Chairman Bernanke pulled the heroin money printing from the market, the following went up in price (see chart below).

Below I list the same ticker symbols without the price chart so you can see what each ticker symbol represents.

From April 23rd 2010 to July 2nd 2010 money flowed INTO the following investments:

+11.85% = Long-Term US Government Bonds (TLT)
+6.28% = Mid-term US Government Bonds (IEF)
+4.68% = Gold (GLD)
+3.73% = US Dollars
+1.44% = Corporate Bonds (LQD)
+1.16% = Short-term US Government Bonds (SHY)

And at the same time money flowed OUT OF the following investments:

-2.51% = Silver (SLV)
-5.44% = High Yield Corporate Bonds (HYG)
-12.33% = Emerging Markets (EEM)
-16.10% = S&P 500
– 21.69% = Oil (OIL)

Fast forward to seven weeks ago.

Seven weeks ago on April 29th the stock market peaked.

In the past seven weeks the assets below are where money is flowing INTO today:

+3.5% = Long-Term US Government Bonds (TLT)
+2.9% = Mid-term US Government Bonds (IEF)
+1.60% = US Dollar
+1.40% = Municipal Bonds (MUB)
+.0.32% = Short-term US Government Bonds (SHY)
+0.14% = Corporate Bonds (LQD
)

And where money is flowing OUT OF today?

-1.69% = Gold (GLD)
-3.47% = High Yield Corporate Bonds (HYG)
-6.83% = S&P 500
-7.12% = Emerging Markets (EEM)
– 14.06% = Oil (OIL)
-25.03% = Silver (SLV)

When I compare April 2010 (the last time money printing stopped) with June 2011 (money printing stopping) I gather the following conclusions:

1) US Long-term government bonds still hold a prominent position during scary times.
2) Money printing has been holding up the economy and the market for 27 months.
3) Most people’s portfolios are not prepared for a stock market without money printing.
4) There is always a handful of assets that are protecting and growing a person’s wealth.
5) Conventional investing is a VERY expensive way to get to retirement.
6) Obama is a one-term president unless the Republicans elect a buffoon to run against him.
7) Gold did well last time without money printing (and it will do well again).
8 ) The US Dollar went up (and is going up right now) even know its intrinsic value is $0.
9) People are so worried about keeping their jobs that they don’t even have time to see what is really happening to their wealth.
10) When a government destroys its currency it destroys its country.

So where does this all end?

For the bottom 90% to 95% of the US and the Developed Nations, it ends in tears and riots in the streets. I’m serious.

For the top 5% of the US and the Developed Nations, it ends with higher taxes.

We are living in and through one of the great turning points of our planets history. The largest militarized nation in the history of the world has positioned itself with so much debt that the balance of power has changed.

The US has cornered itself with its own hubris. The US has generations of citizens that believe they don’t need to pay for the things they consume. These citizens feel entitled to their lifestyle simply because they were born inside the boarders of the USA.

And don’t for a second think this is just a USA thing. Greece, Portugal, Spain, Italy and Ireland are also facing their day of reckoning.

My suggestion: focus on where the money is flowing. The flow of money never lies.

IF you follow the money, THEN you will protect yourself, your family and your future. This has never failed.

When you find yourself wanting to be among other investors that protect and grow their wealth in any market or economy, than you might be finding yourself wanting to know more about my private investor peer group, the Insiders Club.

Currently, my Insiders Club-Premium members are making changes to their investments so they are prepared with a world without Chairman Bernanke’s printing press. Do you have the right stuff? Find out here.

Together, we are growing and protecting your wealth,

RC Peck

2 Comments

  • Ivan H.

    June 20, 2011

    RC, thank you for sharing your insights. Sad that US Inc. has successfully raised a nation of babies that expect the government to take care of them. Kingdoms rise and kingdoms fall.

  • Sean

    July 12, 2011

    Love the cartoon at the top of this post. Great visual… that's so easy to remember.