It’s summer 2010, deja vu.  QE2 ended in June, economy hasn’t gotten any better, and labor market remains bleak.  People (including Fed Chairman Bernanke) started to talk about another round of quantitative easing.  He immediately took back all his words the next day.  The market gyrated.

For QE3 doubters,  now look back to listen again these predictions a few months ago, for example, Marc Faber.  Well,  if you ask me, who am I willing to believe, Bernanke or Marc Faber?  I would vouch for the latter – why should I pick someone who continues to disappoint? – the cry-wolf.

QE3 will eventually arrive, but don’t wait until the actual announcement to adjust your portfolio.   Why? QE2 finally arrived in Nov. of 2010.  But all the asset appreciations, including Treasuries, took off much earlier around April-May, when the speculations began to circulate.  Now is your best time to reposition your portfolio.

The Fed will print more money to support bonds and treasuries.  Then they will resort to inflation to pay down government debt.   Chinese and Japanese will cry foul again.  But as small investors, the easiest way to profit from this is to long long-term bonds, which tend to appreciate much more than their short-term cousins.  Buying bonds sounds really silly when the yields are at historically low.  But the bond bubble simply is not willing to pop, not yet.  Everybody has been betting the yields will only go up, but what if we are headed for a long slog?   And Bernanke Co. seems so willing to use whatever they have to prevent another Japan.

Okay, all these are good for bonds and bad for the dollar.

The US dollar will continue to depreciate, especially against those resource/commodity currencies, such as Brazilian Real and Australian Dollar.  These currencies tend to  move closely with emerging markets, which triple the growth rate in the developed world.  Australian dollar surged over 50% since 2008-9 low, and as safe haven, Swiss Francs has appreciated nearly 50% – I personally felt the pinch when I traveled to the Switzerland last month.   The same logic applies to gold.  Gold will continue its rally.  Don’t think gold is near its peak at $1,600.  Wait until you see QE3.

Just a few of thoughts here. Wait until next time…