Insights & Advice


From one Fed to another


What a week it was! The U.S. central bank marked the end of its quantitative easing, while promising to keep interest rates low. On the other side of the world, the Japanese central bank did the opposite. Their Fed increased the amount of stimulus it will add to the economy from $600 billion to over $730 billion per year.

Oh, and by the way, the U.S. stock market loved the news. The S&P 500 Index climbed to within a hairsbreadth of its historical high while the Dow actually made a new intra-day record.  It is good news if you are a global investor, which I am. More stimuli, wherever it may be, actually enhances global growth and that’s good for us. Despite those who criticize the Federal Reserve’s quantitative easing efforts since 2009, these actions have not only carried this economy back from the brink but set it up for further growth in the future while sending our stock markets to record highs.

That has not happened elsewhere because central banks worldwide have failed to emulate the Fed’s actions. Europe, as I have often said, is struggling because their central bank cannot develop consensus among its EU members to do what it takes to put Europe back on firm footing. Japan, on the other hand, is a horse of a different color.

They have taken the U.S. Fed’s playbook and ran with it. Their first QE project, announced almost two years ago, began the herculean effort of pulling that island nation from a twenty-year economic funk of no growth and deflation. That was a good start, but similar to our own QE I, it’s not enough to do the job. Yesterday, their central bank announced further stimulus, call it QE II, which vaulted the Nikkei stock market over 5% on the news.

If you have been reading my columns over the years, you know that I first recommended Japan as a long-term buy back when the Fukushima Crisis had devastated the country (“Japan: Is the sun beginning to rise?” June 2, 2011). At that time, the Nikkei was at 9,955. The Nikkei now stands at 16,413. Investors who followed my advice have made about 65% on their investment. So what’s next?

Japan’s stock market should continue to climb. My mid-term target for the TOPIX, which is the Tokyo Stock Exchange’s price index, is1,750 which is a 26% gain from its present level. That’s not too shabby, but don’t neglect the U.S. market either. After sounding the “all clear” in my last column, U.S. markets have continued to climb. I expect those gains to continue through the end of the year and into next year. Why?

The economy is growing. I believe that growth will surprise you on the upside as events unfold. Although we still need to do more work on the labor side, especially in seeing more full-time jobs and pay increase, consumer spending is starting to come around. The fact that energy prices have dropped precipitously will help out on the spending end as well as in the months to come.

If I am right, after mid-term elections, we may finally see those do-nothings in congress actually get to work on a new economic stimulus plan. Call me a cock-eyed optimist, but I am actually hoping for compromise legislation out of both parties. All-in-all, the picture I see unfolding in the months ahead is quite positive. Have a Happy Halloween.



Posted in At the Market, The Retired Advisor