The Fed's BFF

By: Adrian Ash | Fri, Feb 3, 2012
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Cheap money was trending long before "the" Facebook lost its article and 845 million people lost the rights to their lives...

The U.S. FED's status update last month about how it still loves cheap money always and forever was sure to work magic. Even if the pixie-dust did blow straight past output, incomes and capital formation.

European crude oil this week pushed up through $112 per barrel, taking the average price since Quantitative Easing began in February 2009 above the 3-year "oil bubble" average of mid-2005 to 2008. Swiss commodities trader Glencore is looking to merge with Xstrata mining to create a $79 billion giant - all settled in paper. And the Nasdaq ended this week at an 11-year high, just as Facebook gets ready to float with little but Farmville for income.

Facebook's valuation adds the tang of nostalgia to frontal lobotomies. More than 1 human in every 8 now alive apparently spends an average 33 minutes per day in the roomful of mirrors. But Facebook's profit for scalping their souls? Scarcely a dollar a lobe in 2011. So its brokers expect a price-to-sales ratio near 27 and a likely price/earnings ratio of 100-to-1 - the kind of mindless pricing we saw when the Nasdaq first crossed 2,900.

To repeat: gold and silver prices have both risen on the same tsunami of cheap money, that seismic tide set to gift even Facebook's worst enemies a $300 million payday. When the flood next retreats, both gold and silver will likely be left well below their high-water mark, too. But that could look nothing next to the destruction around them.

Which is why cheap-money love is proving so very more-ish to the big central banks.

UK House Price to Earnings Ratio

See how UK housing, in terms of average income, is still more expensive than at the very top of the late 1980s' bubble? See where the sharp discounting, back towards something like affordable, was arrested in early 2009 by the Bank of England's first injection of queasing?

Cheap money continues to cause more trouble than mischief, in short. And thanks to Ben Bernanke's old-new best friend forever, gold just put in its best 1-month gain since 1999.

It's not surprising after that rate of gain to see Friday's trade taking a profit. But cheap money will surely get another +1 when London and Frankfurt's central banks both meet next Thursday. Euro investors in particular will want to like the ECB's Mario Draghi, what with Greece on the verge of default and another two weeks still left before the next round of unlimited 3-year lending to banks.

Gold already topped €1335 per ounce this week. It breached that level on only 5 trading days in last summer's frenzy.

 


 

Adrian Ash

Author: Adrian Ash

Adrian Ash
BullionVault.com

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the head of research at BullionVault, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the secure, low-cost gold and silver exchange for private investors. It enables you to buy and sell professional-grade bullion at live prices online, storing your physical property in market-accredited, non-bank vaults in London, New York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people from 97 countries used BullionVault, owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical silver (US$129m) as their outright property. There is no minimum investment and users can deal as little as one gram at a time. Each user's unique holding is proven, each day, by the public reconciliation of client property with formal bullion-market bar lists.

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