Part 2: How to Invest When the Next Round of Monetary Easing Hits
On Friday, we discussed what happens when the Fed follows the European Central Bank (ECB) in the next round of easing.
Specifically, we noted that the Fed is no different than the ECB in the way that at some point, it will be forced to start cutting rates and introducing new QE programs.
The reason for this is because the Fed is desperate to get Treasury yields back into their long-term downtrend. Recently, the yield on the 10-Year U.S. Treasury has bounced off of its long-term trend line and is moving in the WRONG direction again.
This is going to force the Fed to act and likely act soon. This can be seen in the chart below.
The big winner from this will be gold.
Gold Will Rise as Stocks Will Fall
When the ECB recently announced that it will soon be launching another round of monetary easing, gold — priced in euros — broke out of a multi-year consolidation pattern and erupted higher.
This is shown below.
So, when the Fed follows the ECB, we can expect gold — priced in U.S. dollars — to follow. But what about stocks?
Stocks Will Also Rise… Before Falling
This is a bit more complicated. When the Fed implements its next round of monetary easing, it is going to unleash inflation.
Now, stocks LOVE inflation at first. But eventually, this relationship goes south once inflation rises enough that it hurts corporate profit margins.
We saw this in the early 1970’s right after then-President Richard Nixon took the U.S. off the Gold Standard. Stocks erupted higher as inflation rose from 1971-1973.
However, once inflation began to spiral out of control, the stock market plunged, giving up all of its initial gains and then some. This love/hate relationship can be seen in the chart below.
I expect a similar pattern to play out with stocks when the Fed implements its next round of monetary easing. We’ll likely see a blow off top, followed by a sharp drop.
Those who pick the ride side of this trade could generate literal fortunes.
In fact, I’ve spent the last six months developing a trading strategy to profit from central bank interventions.
In the last month alone, we’ve seen gains of 67% in two days’ time, 75% in five days’ time, even 100% in four days’ time.
And we just closed out another winner – a 79% gain in just two days!
I’ll tell you all about it very shortly, but suffice to say, the opportunity to generate literal fortunes from central bank insanity is here.