How to profit from QE3 & the coming wave of liquidity

Yesterday afternoon the Federal Reserve announced the details of its third round of quantitative easing, so called QE3. This new stimulus, combined with recent measures announced in the Eurozone, the UK, China, Japan, Brazil, and South Korea, will send a huge wave of liquidity through the financial markets which will push up the nominal price of just about every asset.

The 247Bull investment portfolio is perfectly positioned to benefit from all this new stimulus and since its launch on 18 June this year it is up 4.5%. However now is the time to deploy more of our cash into the companies we believe will benefit most from this fresh wave of liquidity. This article outlines what the Fed has planned and what it means to investors. It also reveals which companies and assets 247Bull has added to its portfolio.

QE3: The details

The Fed revealed that it will buy additional agency mortgage-backed securities* at a pace of $40 billion (£25 billion) per month. It will also continue its Operation Twist programme until the end of the year, and maintain its zero-interest-rate policy (ZIRP) until at least the middle of 2015.

* Agency mortgage-backed securities are essentially mortgage debt which has been securitized and issued by government-sponsored enterprises such as Ginnie Mae, Fannie Mae and Freddie Mac.

Although these monthly purchases will not be as big as those made during QE1 and QE2, the Fed’s latest scheme does not have an end date, and rather is “open-ended”. It is therefore likely that the Fed’s Balance Sheet will grow to more than $4 trillion by the end of 2013.

The FOMC stressed that it will closely monitor the state of the US economy in coming months, and, “if the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved”

The Fed is clearly determined to further bring down the cost of borrowing and push cheap money into the economy in an attempt to get consumers and businesses spending again.

The central bank even said that it “expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

What does QE3 mean for me as an investor?

So what does QE3 mean for investors? Well it means were going to see another huge wave of liquidity (cheap money and credit) making its way through the financial markets, where it will bid up the nominal price of just about every asset it touches.

The biggest beneficiaries of all this new stimulus will be precious metals, that’s because global coordinated QE is essentially just a race to devalue the purchasing power of the worlds paper (fiat) currencies. Other assets that will do well will be those denominated in US dollars, in particular commodities such as oil.

The 247Bull investment portfolio is perfectly positioned to benefit from all this new stimulus and since its launch on 18 June this year it is up 4.5%. However now is the time to deploy more of our cash into the companies we believe will benefit most from this fresh wave of liquidity.

Purchases

We have added the following companies to the portfolio: McEwen Mining (TSE:MUX), Silvercorp Metals (NYSE:SVM), Pinetree Capital Ltd. (TSE: PNP), ConocoPhillips (NYSE:COP), Exxon Mobil Corporation (NYSE:XOM), Range Resources Corp. (NYSE:RRC), McDonald’s (NYSE:MCD), International Business Machines Corp. (NYSE:IBM), The Coca-Cola Company  (NYSE:KO), Potash Corp./Saskatchewan Inc. (TSE:POT), and Cameco Corporation (NYSE:CCJ).

We have also added to our holdings of the following: Physical Gold, Physical Silver, BLACKROCK GOLD & GENERAL A INC, Newmont Mining Corp. (NYSE:NEM), Goldcorp Inc. (TSE:G), Gold Resource Corporation (NYSEAMEX:GORO), Golden Queen Mining Co. (TSE:GQM), and Silver Wheaton Corp. (TSE:SLW).

Shorts

Due to the old adage that a rising tide lifts all boats (even when they have little intrinsic value), we have covered our short positions in Manchester United and Facebook. The Manchester United trade netted a 6.8% profit while the Facebook trade was covered at an 11.8% loss.

The 247Bull portfolio

 

Portfolio as at 14 September 2012

Notes: 24 of the 29 companies in the 247bull portfolio are in positive territory, with many of them are up double digits.

247Bull.com Editor: The 247Bull Precious Metals Index is up 16.8% so far this year.

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