Those of you who have followed this post since its inception last November might recall that investment strategy options it recommended at that time were clearly defined: sell bonds, buy equities, mind the caution flag on gold whose price had gone too far.
And this is what happened: Yields on the U.S. 10-year Treasury note rose from the end of last November to July 5 of this year from 1.62 percent to 2.74 percent; over the same period, the Dow Jones Industrial Average soared 16.6 percent and the price of gold fell 30.5 percent.
Assumptions underlying these investment strategy thoughts were simple and straightforward - and they have not changed since: The U.S. economy was seen on a growth path that would gather pace as the strengthening banking system stepped up lending to businesses and households.
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This assessment also included the view that the U.S. Federal Reserve's monetary stimulus would partly offset fiscal restraint imposed by automatic government spending cuts and tax increases.
Monetary Policy Works – Always, Everywhere
The big losers in this game are those who doubted the effectiveness of the monetary policy. In their view, the Fed's monetary stimulus had no traction because it was caught up in the "liquidity trap," the classic metaphor for an ineffective, "pushing on the string," monetary policy.
They, therefore, concluded that the U.S. economy was flat on its back. So, "head for the hills," they called, and load up on bonds and gold.