MacQ Macro Strategy – bullish on gold, oil, base metals

Macro Strategy – bullish on gold, oil, base metals
[Report attached] Macquarie’s macro strategist based in Canada, Steve Harris, commented that the $1.15tr expansion of the Fed’s quantitative easing (QE) initiative is a bullish development for both equity and credit market. More QE = more future inflation. His highest conviction idea is to buy gold and gold equities. He also recommends oil, base metals, and agricultural commodities and their related equities, as prices should benefit from inflationary monetary policies. Against short term consensus view, he is bearish on US treasuries as the market could be ignoring the rising long-term inflationary implications of QE policies and overly focused on short-term supply/demand impact.

Quantitative easing factsheet
[Report attached] Macquarie’s economist Aimee Kaye provides a factsheet on quantitative easing, a subject that has become popular in recent days. Quantitative easing (QE) refers to an unconventional monetary policy tool whereby the central bank flushes the banking system with new deposits. This is accomplished by using newly-created money, in the form of bank deposits as opposed to cash, to buy up large quantities of assets from banks. This creates excess deposits in the banking system, while expanding the central banks’ balance sheet with the purchased assets.

The risks of pursuing QE are high, and most commonly cited is the risk to inflation. In the current environment, some inflationary pressures would not go awry. Rampant inflation only becomes a problem if QE works ‘too well’, with additional reserve deposits simultaneously extended as credit to households and business. The risk of this occurring is low. Indeed, with ongoing financial tensions and an economy in recession, QE can be considered the lesser risk.