Now for the Fourth Year of Quantative Easing...

Gil Morales and Chris Kacher
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Posted: Mar 13, 2012 12:01 AM

Quantitative easing (QE) has been with us since early 2009. It has rendered many tried-and-true market indicators impotent since price/volume action in leading indices has become somewhat less reliable. Stock market timing techniques since 2009 have been more or less decimated with only the exception of this website and a couple of others, and that said, it has not been an easy environment.

One key is to capture the big gains when they occur http://www.virtueofselfishinvesting.com/results while keeping losses to a minimum on false signals which is done by the fail-safe built into the model. Further, pyramiding trending vehicles such as silver (SLV, AGQ) and a couple key stocks in 2011 made all the difference. In 2012 (as of this writing, March 12, 2012), jumping on board a basket of leading stocks we reported on in real-time puts 2012 in a much better light than 2011, which was a year of trendless, news driven, gap-up/gap down volatility.

QE is an effective manner to manipulate the stock market higher, often on anemic volume, creating the illusion of wealth and an improving economy. And since people vote with their portfolio pocketbooks, such investors are more likely to buy stocks in such a stealth bull market environment, creating a further illusion of wealth. Meanwhile, the slow destruction of the dollar and other currencies ensues, as central banks around the world continue to print money.

Further, fictitious privatized profits are paid out in the form of bloated bonuses to the financial illuminati while massive losses, most of which are hidden from the general population, are nationalized. The hard working taxpayer is ultimately left holding the bag as their precious savings become worth less and less while their tax rates go up more and more. And such tax rates are not overt, per se, on a federal level, but come in all shapes in sizes across many levels- small business taxes, city taxes, excise taxes, and so on. And this is all because of too much debt and the drive to rescue zombie banks and zombie businesses in the name of “too big to fail.”

Ultimately, the solution for too much debt is not more debt - although that's what the US, UK, and Europe seem to think the solution is. It's ludicrous. The Euro would strengthen if the weakest EU members were forced to pay their debts by initiating austerity measures on the lagging countries.

Also, letting Greece default would send a strong message and allow the EU to focus on its members that are too big to bail. They should be forcing countries to cut spending, they should allow creditors to take big losses, they should allow people to go bankrupt. The idea of printing more money and buying worthless bonds instead of allowing people to go bankrupt is how you destroy an economy, and it's how you destroy the Euro.

If the economy were a patient with a brain tumor, the central banks are injecting the patient with morphine to make the patient feel better, but meanwhile, the tumor continues to grow. The price to pay for providing temporary feel good solutions without dealing with the tumor is catastrophic. But we have to remember these people in power are politicians first and want to get reelected, so they inject morphine into the system so the voters will reelect them into office. And the end result may be disastrous stock market results which is indicative of a disastrous economy.

JAPAN vs SCANDINAVIA: When a country or company is bankrupt, they're bankrupt. A country should not deny it and try to prop them up. Obey reality. In Japan, they won’t let anybody fail. It's been 21 years since Japan's bubble burst, and since then, the Japanese market is down 75% from where it was. By contrast, in Scandinavia nearly along the same timeline, they saw there were problems, they took their losses, they suffered much pain for a few years, but then they boomed once the zombie businesses and banks were pushed out.

The way capitalism works is you make bad loans, you lose money. In the US, we've had states and cities go bankrupt a number of times, but it didn’t end the US dollar. You start over from a stronger base once you acknowledge your mistakes. That's what's capitalism is all about. Sadly, capitalism is increasingly practiced only in theory, while the statist and socialist reality grows stronger.