A massive asset bubble is possible from here…
For years, I’ve been telling DailyWealth readers that stock prices could soar to never-before-imagined heights – well beyond reason or “fair value.”
Gold and real estate could do the same.
The reason is simple. It’s due to Federal Reserve Chairman Ben Bernanke.
[ad#Google Adsense 336×280-IA]And this week in a speech in Indiana, Bernanke laid his cards out on the table…
Here’s what Bernanke said: “We expect to keep the short-term interest rate at exceptionally low levels to at least mid-2015… so long as price stability is preserved, we will take care not to raise rates prematurely.”
He will keep this interest rate policy in place “for a considerable time after the economy strengthens.”
He didn’t come out and say it specifically – but what he meant is that we’ll have “low interest rates – indefinitely.”
With interest rates near zero for years, investors are being forced to get their cash out of the bank and into other assets, like stocks, gold, and real estate. Because of this, asset prices can and should soar for years.
What will cause him to change his line of thinking? He explained his situation…
The goals of the Federal Reserve are “maximum employment and price stability,” he said. These Federal Reserve goals are “given to us by the Congress.”
Let’s look at these two goals of Bernanke’s and where we stand with them today…
1) Employment. The unemployment rate is over 8%, so Bernanke will keep interest rates low to help stimulate the economy and improve this number – but that will take time.
2) Price stability. Right now, the inflation rate is forecast to be around 2% for 2013 and 2014. So inflation is not a problem… yet.
In short, based on where both of these are today, Bernanke is comfortable keeping interest rates at zero for a very long period of time – to “at least mid-2015.”
Bernanke has laid his cards out. We know his intentions. We expect his actions can and will drive asset prices to crazy levels.
You have to position yourself for this…
Buy some real estate. Get a new mortgage on your home. (I’m getting one.) Own stocks. And own gold.
Then, sit.
As I said late last month, this “Bernanke Asset Bubble” may be due for a short pause. But this idea will take time to cook – possibly years.
You can’t speed up that Thanksgiving turkey by cranking up the temperature – you’ve got to sit and wait. So get yourself positioned… and then sit.
The time to sell will be when inflation shows its head or the unemployment situation improves. That could be years.
Bernanke has given us the playbook for what to do in the meantime. He reiterated it this week.
It’s up to you to profit from it.
Good investing,
Steve
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Source: DailyWealth