Brian Pretti's Blog

Investors are painfully aware of the comments regarding the potential end of Quantitative Easing made by Fed Chairman Bernanke in the middle of June. Could it really be that after systematically creating an environment where obtaining any type of yield is only to be achieved by increasing investment risk...

To suggest gold is a controversial asset is not bold. For those watching long term, you know gold rose over 300% in the last decade before it even gained mainstream attention, let alone acceptance by many as an investment vehicle.

Before taking even one step further, I’ll tell you right up front that this is more of a “for fun” discussion than not. For many a moon I have followed a number of sentiment surveys that I believe can be quite helpful.

Every once in a while I find it very helpful to just sit back and look at charts that essentially have no titling. At least for myself, it’s often an easy way to “see” trends, or more importantly change in trends, without having my own personal bias of the moment get in the way of trying to interpret what the chart(s) may be telling us.

One of the apparent conundrums of US Fed money printing in the current cycle is lack of headline inflation, at least as measured by the CPI. Certainly the CPI calculation itself is open to debate in terms of whether it is accurately depicting the cost of living in the US.

We all know what has been going on with Japanese politics, BOJ personnel reformation and Japanese financial markets since Abe was elected late last year. The Japanese have now joined the global central banking chorus of “whatever it takes”.

With the US Fed’s third quantitative easing program since 2009 announced in latter 2012, QE3, we know the Fed is explicitly targeting two key hoped for outcomes. First, Mr. Bernanke has told us he wants to see higher stock prices. So far, so good.

The Dow Jones, as well as a number of other equity indices, has recently achieved new all-time price highs. Was it really a question this would occur? We do need to remember we’re now just edging above price levels seen almost six years ago in 2007 and thirteen years ago in early 2000, and on an inflation adjusted basis we’re still close to 20% below old highs.

You’ve probably heard the talk making the rounds these days that margin debt is today as high as anything we have seen since 2007. In nominal terms, that’s exactly correct. So, is it really a reflection of “animal spirits” that are too highly elevated? After all, isn’t this exactly what Bernanke and friends wanted to have happen as the endgame for all the QE iterations?

One of the rationales I’ve heard for bullishness on the financial markets since I was an investment babe-in-the-wood is the “mountain of money” argument. Cash on the sidelines, etc. I’ve heard this at major market peaks and major market troughs.