As you read this, the world’s elite money men and women are cozied up in Jackson Hole, Wyoming. They’re tucked away in hunting lodges, the country version of the Ivory Towers they’re used to inhabiting.
And they think they’re safe …
That they’re in complete control …
That the Old Guard world they’ve created is going to last as far as the eye can see.
Me? I think they need to look out over the battlements. They need to stare into the gloom and shadow and fog. Because if they did, they’d realize that the enemy is at their doorstep. Or in plain English, the death of the Old Guard — the monetary policy regime of the last five years — is at hand!
Sound crazy? I mean, isn’t the Wall Street crowd out there saying the opposite … that this low-volatility, everyone-all-together-rowing-in-the-same-direction, world … will be with us for a long time?
Sure, they are. But when has listening to the Wall Street consensus ever made you money for long?
|Jackson Hole, Wyoming — Is this the setting for the death of the monetary policy Old Guard? (photo: Chamber of Commerce)|
The fact is, we had five years of monetary policy coordination from 2009 to late-2013. We had five years where every central bank on the planet was printing money in unison, and singing from the same hymnal.
Not anymore! I’ve been highlighting the growing divergence between our economy and Europe’s, for instance. But the shift away from the Old Guard world goes much deeper than that.
As Mohamed El-Erian, formerly of Pimco and now chief economic adviser to Allianz SE, wrote earlier this week:
“After a long period in which the world’s largest central banks were all pushing in the same direction, they’re now reaching the point where their policies will diverge. The Bank of England and the Fed are in the process of taking their foot off the stimulus pedal. The European Central Bank and the Bank of Japan will be going the other way.”
Heck, even within the U.K., policymakers are heading in separate directions. Two policymakers on the Bank of England’s rate-setting committee dissented at the last meeting, the first time that’s happened in more than three years.
They voted to raise U.K. rates by a quarter-point from 0.5 percent at the Aug. 6-7 gathering. Along with slightly more hawkish talk from BOE Governor Mark Carney of late, that sets the stage for hikes later this year or early in 2015.
Here in the U.S., the Fed has already slashed the size of its QE program by more than 70 percent — to just $25 billion from $85 billion late last year. It will likely cut that number to zero at the next couple of policy meetings, something that also sets the stage for actual rate hikes thereafter.
As investors, this creates new risks and new opportunities. One of the best ways to profit from the economic and policy divergences is to position yourself for a decline in Europe’s currency. It has been tanking for a while now because of the death of the Old Guard policy environment, and it just dropped to an 11-month low this week.
That has paid off nicely for my Safe Money Report subscribers. I recommended a specialized ETF that rises in value when the euro falls back in April to them, and they were recently showing open gains of more than 6 percent.
Another way to profit? Focus on strong domestic industries that should benefit from the relative strength we’re seeing here. The surge in energy production, transportation, distribution, refining, and exporting is creating huge winners here in the U.S. Things are so good, the Fed is being forced to react by cutting back on QE and laying the groundwork for rate hikes.
And please, tell me what you think about this important shift — from Old Guard to New. You can do so right at the Money and Markets website here. What investments do you think will shine in this environment, and which will suffer? And how are you positioning yourself to profit? We’d all like to know!
Until next time,