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We posted back in July that the correlation between UK QE and the UK
stock markets was likely to be broken as four rounds of QE have now been
completed and yet the primary increase in asset prices had been
completed after the second round, last year. Indeed in July and August
of this year there was a modest uplift in the UK markets, but nothing
overly dramatic, a 100 points on the FTSE here or there. The real QE
impact in the UK has not strangely been from our own domestic monetary
activities but from Marc Faber’s favourite person (not!) - Mr Bernanke
in the US..
Expectations had been building right through August that the Federal
Reserve would have to authorize more QE to help the stalling US economy
and the button would be pressed in September to avoid accusations of
interfering with the US election cycle. And so it has come to pass with a
very big effect on markets with the FTSE poised to break the 6000
barrier. Earlier in the month we wrote that the charts for the FTSE were
looking more and more bullish with a move above 6000 very likely.
With ”the can” not just kicked down the road but sent into orbit by
Mr Bernanke through the introduction of a new element to the monthly
$40bn asset purchases and that is the effective unlimited timescale, we
can expect the FTSE to establish itself above 6000 in the weeks ahead.
Throw into the mix the German Court decision which will extend the
Euro udge for a few more weeks (let’s not forget the law of diminishing
returns applies to Euro bailout announcements and Greece is already
asking for a 3rd bailout) then September looks to be set fair (a bit like the weather - finally!).
Risk assets are the ones to take positions in and within those key
commodities – gold as a store of wealth against devaluing currencies and
copper, which is one of the few commodities to have seen significant
de-stocking this year, together with silver we can expect more upside
this year. It’s time to be brave. In 2009/10 risk assets moved up 500%
from their lows in many cases. The lows are much higher this time, but
triple digit profits could be made by Christmas in certain sectors of
the markets and if oil goes higher, then our old favourite - the oil
explorers sector is likely to a big beneficiary.