“It deserves emphasis that a 6-1/2 percent unemployment rate and inflation one to two years ahead that is 1/2 percentage point above the Committee’s 2 percent objective are thresholds for possible action, not triggers that will necessarily prompt an immediate increase in the FOMC’s target rate.”

Stepping aside by Bernanke remains a bit of a mystery, about which nobody cares. Why is he quitting his office? He was considered as the most competent man for the job – sophisticated money printing analyst, who is brilliant and capable of comprehending and directing Fed’s special operations. Now, he shall be succeeded by another brilliant person, who believes in those operations. Why then change? Two possible answers arise. The first one – Bernanke is tired and has had enough. Not only the experience was exhausting, but also the criticism was stressful. The second one – Bernanke stopped believing in continuation of special operations, and was interested in stepping back. Since this was rejected as unacceptable, so he had to step back. Let us not forget that in his texts before he was chosen as the Fed’s chairman he warned that the special operations may not work that well, because they could create a specific cocoon of various assets disconnected from the real pricing process (exactly what has happened!).

The certain fact is that Yellen is ready to continue with Fed’s expansionary operations. Therefore no tapering on the horizon so far. More money printing means greater chance for gold price to rise in the coming years.

In discussing unconventional tools in the realms of zero interest rates Yellen indicated that tapering is not on the horizon as long as two key variables remain at specific level. If the unemployment rate stays over 6,5 percent and inflation does not reach levels permanently higher than 2 percent goal, then the Fed is staying on the same course. This is basically what Bernanke was suggesting, but with higher emphasis on those specific levels. Bernanke left some uncertainty in his statements. Yellen is clear: we print until unemployment is over 6.5 and as long as the official inflation rate does not reach unacceptable levels.

Actually even more, because she highlighted that under those conditions Fed’s action is only “possible”, and not automatic. Seeing her concern about labor markets, it can mean that even if the official rate stays below 6.5 percent, then the Fed could still go on.

Yellen believes in the classical Keynesian framework: spending keeps the economy going. As long as the inflation rate is not running away, we should keep adding more money. If there is no direct inflationary pressure, and the economy is in recession, then spending is too low.

Well, this is all good news for gold bugs. If the central banker can do something for them, I guess the best way is to run the printing press.

The above is based on the November Market Overview report. We have just posted the December issue entitled “Tapering is not Tightening: Decomposition of Tapering” in which we discuss why tapering is not the same thing as tightening, why tapering has already happened in 2010 and what kind of tapering can actually take place. If you’re interested in the above and their implications on precious metals and your portfolio, we invite you to subscribe and read the latest Market Overview report.

Thank you.

Matt Machaj, PhD

Sunshine Profits‘ Market Overview Editor

Gold Market Overview at SunshineProfits.com

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Matt Machaj, PhD and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matt Machaj, PhD and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Matt Machaj, PhD is not a Registered Securities Advisor. By reading Matt Machaj’s, PhD reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Matt Machaj, PhD, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 Chaotic markets have left investors scrambling for ways to boost returns without taking on excessive risk. But there’s a simple strategy that can make a virtue out of market volatility: Build a portfolio around high-quality stocks with generous dividend yields to offer a cushion against market swings, and juice even more income from those stocks through the strategic use of options.

Options contracts give an investor the right to buy or sell a stock at a future date and specific price. The demand for options, along with their prices, typically rises when market volatility flares up, as has been the case of late. The Chicago Board Options Exchange Volatility index (VIX), the most common measure of investor fear, spiked above 40 during August and September — double its long-term average. As a result, buyers have been flocking to options.

And therein lies your opportunity. To reap more income from dividend-paying stocks you already own, you can sell “covered calls,” granting another investor the right to buy a stock you own at a higher price in the future (known as the strike price). You pocket money from the option sale, which you get to keep no matter what happens with the stock down the road. “It’s a strategy that can improve your odds of success and provide superior returns over time,” says Michael Khouw, director of equity derivatives trading at Cantor Fitzgerald.

Here’s how. Let’s say that you bought the stock of drug maker Abbott Laboratories (ABT, Fortune 500), which was trading at $51 a share in mid-September and had a dividend yield of 3.8%. You could then have sold a call option, which at the time was trading for $1.03 a share, granting another investor the right to buy your Abbott shares for $55 at any point until mid-January. If the stock price stayed below $55, you would continue to own the stock, but you’d still keep the $1.03 per share you got for selling the call option. When it expired, you could sell another round of options against the stock, boosting your income yet again.

If, on the other hand, Abbott shares traded above the call option’s $55 strike price before mid-January, you might be forced to sell your shares and miss out on some of the upside in price appreciation. In that case, you’d realize a 7.8% profit on the stock, pocket the $1.03 per share from the option sale, and collect the quarterly dividend payment. Not exactly a horrific outcome.

To reduce the likelihood of being forced to sell a stock you want to hold onto, Khouw recommends selling call options with a strike price comfortably above the current market price — say, 10% higher — even if that means settling for a smaller cash payment upfront. “This is not a trading strategy — it’s an investing strategy,” he notes.

And it’s a strategy that makes sense for the foreseeable future. “Heightened volatility isn’t going away anytime soon,” says Sam Stovall, chief investment strategist for Standard & Poor’s Equity Research. You may not enjoy the rocky ride, but at least you can capitalize on it.

–A former compensation consultant, Janice Revell has been writing about personal finance since 2000.

A FREE seminar with Kevin Konar of RBC Wealth Management on Nov 30th.

As I discussed with Michael on last Saturday’s show here are just a few examples of what we will discuss next week as alternatives to low paying GIC rates:

1) Right now there are several high quality preferred shares available that pay a dividend rate of over 5% per year . These are guaranteed investments with some issuers maturing in just 2 years! So short term, safe and an excellent rate!

2) There are also floating rate preferred shares available from the major Canadian chartered banks that will adjust the dividend rate that they pay you every 3 months based on the 90 treasury bill rate. Right now these preferred shares pay current dividends of around 3% per year, which is equal to an interest equivalent rate of 4% . And when rates go up, so does your rate! This is a great alternative to money market rates and low paying GIC rates!

3) Convertible corporate bonds are excellent investments inside RRSP’s and RRIF’s. These bonds offer safety + capital gain growth potential. Several high quality names are available with rates between 4.5% and 5.5% per year, with the principle guaranteed back within 3 to 6 years. In addition, these bonds also offer capital gain potential based on how their underlying common shares perform.

I have several more alternatives that we will discuss in detail at our presentation next Saturday.

Date: Saturday, November 30th
Time: 10:30 AM start (library doors open at 10 AM)
Place: Welsh Hall inside the West Vancouver Public Library – 1950 Marine Drive – in West Vancouver

Seating is limited. To reserve your complimentary seat, please e-mail Brian Moore at brian.e.moore@rbc.com with your name, contact info and how many will be attending.

Today one of the top economists in the world spoke with King World News about one of the most terrifying predictions for the year 2014.  This is an incredibly powerful interview where he discusses his frightening prediction and what this will mean for global markets.  An audio interview has now been released from KWN where Michael Pento, founder of Pento Portfolio Strategies, speaks about this terrifying situation. 

Pento:  “It’s actually comical that after 5-years of telling the market that QE is all about pushing interest rates lower, particularly long-term interest rates, now they (the Fed) are doing backflips and trying to say that ending QE isn’t going to cause interest rates to rise.  Let me just go back into a speech that Bernanke gave last year in Jackson Hole…..

“This is a quote from Ben Bernanke, ‘The Federal Reserve’s long and large scale purchases have significantly lowered long-term Treasury yields.’  Did you get that?  The Federal Reserve’s large scale purchases, their QE program, by the way they are on QE4 right now since they announced this program in March of 2009, they have ‘significantly,’ not my words, his words, ‘significantly lowered long-term Treasury yields.’

And now they are trying to propagandize, lie, obfuscate, and confuse the market into telling you you are so stupid not to remember what they’ve been telling you for 5-years:  That their manipulation of interest rates and counterfeiting and printing money hasn’t worked.  But it has.  It has lowered interest rates on the long-end of the yield curve.

And now they are threatening to stop doing it because they (feel) can’t do it any longer.  They can’t stand the fact that they have counterfeited $4 trillion worth of credit and money.  It hurts them (their credibility).  They really feel uncomfortable doing it, but they can’t stop.  They’re trapped.

They are trying to get out of QE, but the exit door is blocked by soaring Treasury yields, (what will be) plummeting equity prices, another real estate crisis, skyrocketing US sovereign debt service payments, massive currency disruptions, and a deflationary depression.  That’s what lies on the other side of year, after year, after year of money printing, credit creation, counterfeiting, and interest rate manipulation. 

There is no exit.  There is no easy exit, and that’s why they are delaying the tapering, Eric.  Do you ever wonder why they didn’t do it in September, when the market was ready for it?  It’s because the 10-Year Note went from 1.5% to (roughly) 3% in just a few weeks.

If the Fed goes ahead and tapers, interest rates go to 4% on the 10-Year (Note), and all of the things I just mentioned occur, and we’re back into a deflationary depression.  I believe that would cause them to institute a permanent state of QE.  That’s where we’re headed, Eric.  That’s what 2014 has in store for you.”

IMPORTANT – This is one of Michael Pento’s greatest and most important audio interviews ever.  It’s available now and you can listen to it by CLICKING HERE.

To order from Amazon CLICK HERE.

“The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market”

To order from Amazon CLICK HERE.