That didn’t last long. The post-meeting euphoria from the 20th summit to once and for all put an end to the euro-area debt crisis has officially ended. Spanish 10-year bond yields are back above pre-summit levels and at one point today they crossed 7%. Yields on Italian bonds have also risen in recent days, but not to the extent of Spanish bonds. It seems investors are losing patience with euro-area policymakers. Following each meeting, policymakers have announced plans to make a plan to announce a lasting solution to the debt crisis. Yet, after 20 iterations, the euro-area debt crisis rolls on. Wasn’t it Einstein who said that the definition of insanity is doing the same thing over and over again and expecting a different result? I guess if the shoe fits.
Global central bankers appear to be drinking the same Kool-aid as euro-area policymakers. Earlier this week, China, the European Central Bank, and the Bank of England all eased monetary policy. With today’s announcement that June payroll numbers fell short of estimates, Mr. Bernanke may take a big gulp of the sugary beverage and announce a third round of money printing at the Fed’s next meeting. Not that the last five rounds of monetary stimulus have provided any enduring benefit to the U.S. economy. We’ve had QE1 and QE2 and Operation Twist one and two, zero percent interest rates, and the promise of zero percent interest rates well into the future. Yet economic momentum has continued to slow. Over the last three months, payroll employment has increased by an average of 75K—the slowest pace since October of 2010. But why allow hard evidence to stand in your way when you can simply point to the counterfactual? You know, the mythological U.S. economy mired in depression that Mr. Bernanke says would be a reality if he didn’t save us all by flooding the system with liquidity.
If your portfolio isn’t ready for a third round of money printing, your window of opportunity is rapidly closing. In Young Research’s Global Investment Strategy and Richard C. Young’s Intelligence Report we help investors craft portfolios to thrive in an age of profligate monetary policy. If you are not now with us, please join us.
Jeremy Jones, CFA
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