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How to Profit from Easy Money Policies
Tue, 20 Sep Pre-Open

The world is flooded with helicopter money- newly created money by central banks of the developed world. This money is encouraged by an unconventional monetary policy that allows central banks to print money and distribute it. But this isn't something new. The central banks have been at it since the global financial crisis of 2008.

In addition to this is the issue of low, zero, or negative interest rates. Central banks around the globe have cut their interest rates to stimulate economic growth. Quite a few economies today are operating under the negative interest rate policy (NIRP).

The concern is that global financial markets are behaving obsequiously to these measures of central banks. They are highly dependent on central bank behavior. In case you missed last week's commentary:

  • Global markets remained under pressure over the week amid concerns regarding central banks, particularly the Fed, becoming less accommodative in the future and the prospect of Fed increasing the interest rates sooner than expected.

    While there has been a lot of talk around the slow recovery of the world economy, the world still continues to look up to major central banks with heightened expectations that they will continue with their helicopter money policy. The central banks themselves seem to have plenty of fire power left to continue their policy of asset repurchase programs. This means that the liquidity driven rally in the financial markets might continue for a long time.

Central banks have been trying to prod growth through stimulus measures and near-zero or negative interest rates. The issue in most cases, however, is that these monetary stimulus programmes are doomed to fail.

To really stimulate growth in the economy, what is needed is  an actual increase in productivity rather than artificial boost through monetary policy measures.

Last month, Fed Chair Janet Yellen voiced optimism about the US economy and anticipation that interest rate hikes are ahead. The comments have kept market participants in a state of uncertainty...and Mr Market in volatility. The course of Fed will be known after its two-day policy meeting that starts today.

Apart from Fed, the Bank of Japan (BOJ) and the European Central Bank (ECB) are also set to hold their monetary policy review this week.

The decisions in these meetings will decide short term movements in markets this week. There could be volatility and Mr Market could once again seem irrational.

This begs an important question: How can one avoid this volatility and profit despite such measures of central banks?

Asad Dossani, editor of Daily Profit Hunter, says Don't Fight Easy Money. He has written on how one can successfully trade such events and build a trading business.

If you're interested in knowing what's really happening in the world of man and money, you can claim your free copy of Bill Bonner's latest book Hormegeddon (just pay Rs 199 for shipping and handling).

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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Feb 23, 2018 10:27 AM