Quantitative easing has created new problems for commodity investors—the systemic distortion of the true supply-demand for commodities. What is a long-term investor to do? In this interview with The Gold Report, Chris Berry, founder of Mountain House Partners, explains what specific factors make a compelling junior miner in this market and lays out his strategy for profiting from a QE-distorted reality.
The Gold Report: After months of financial media coverage, investors are suffering from quantitative easing (QE) overload. At this point, what's important for investors to know about QE?
Chris Berry: QE appears to be one of the last arrows in the quiver of central bankers in the U.S., the Eurozone and Japan to try and resuscitate the global economy. Successive rounds of QE have failed to ignite demand, which was the stated purpose. Currently, a great deal of economic data supports a deflationary rather than inflationary view.
The Federal Reserve would love to create inflation, as this is the intended effect of easy money from the QE programs. So far, however, the most prevalent inflation we have is asset price inflation rather than in wage growth. This is not what the Fed wants. We're not seeing the "demand pull" inflation typically found when demand is outpacing supply. The two biggest overhangs in the U.S. economy right now are structurally high unemployment and a cratering velocity of money.
This has implications for productivity and demand worldwide. Personal balance sheet deleveraging must continue and will not happen overnight. Fed Chairman Ben Bernanke has clarified his intention to taper QE with the eventual goal of ending it outright. So it's less a question of "if" QE will end, but "when." The Fed wants the U.S. economy to stand on its own two feet and Bernanke's public jawboning is, I think, testing the market's readiness for the official end to monetary easing.