Fred Hickey, author of the influential High-Tech Strategist Newsletter, reckons that “the global economy is turning down”. In a recent Barron’s Roundtable, the US investor warned that stocks look “vulnerable”. He points out that “numbers are weak” across all sectors and regions.
With QE2 coming to an end in two weeks he expects things get worse, which, in the end, will lead to more Fed intervention. “Given the criticism of QE1 and QE2, the Fed might have to use other tools to pump up the economy.” But “Bernanke won’t sit there and do nothing. He won’t allow the US to become Japan II.”
What really worries Hickey though is that the Fed’s ‘cure’ could be worse than the ailment. Excessive “money printing” will cause “a collapse in the dollar and severe inflation”. Trouble is the Fed won’t stop “until the rest of the world says “no” to America’s bonds and the dollar”. Until then all we are doing is “putting off the inevitable, needed correction”. The recession of 2009 will be “mild relative to what we ultimately see”.
With such a gloomy outlook, it’s little surprise that Hickey’s largest position is gold. However, he prefers investing in miners rather than the price of the stuff itself. He notes that they “have underperformed the metal” so far.
The same thing happened in the gold bull market of the 1970s and Hickey thinks it “could happen again”. He also owns government bonds from New Zealand and Canada, which are a “play on natural resources, but mostly on better-run governments”.