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Should QE3 Change Your Investment Mix?

Ron DeLegge

Stocks increased today for three reasons: The Fed, the Fed, and the Fed.

Bernanke & Co. made its boldest move yet, unveiling a third round of "quantitative easing" by announcing open-ended purchases of $40 billion per month in mortgage securities.

The Fed's bloated $2.6 trillion balance sheet will explode into an even more ridiculous stratosphere. With QE3, the Fed's balance sheet will be on pace to reach 20% of U.S. national debt.  

Don't be fooled by the Federal Reserve's conservative looking faade: Bernanke & Co. are Wall Street's highest rollers.

All along, Chairman Bernanke has said that lower employment and faster economic growth is the reason behind QE. Yet, the Fed's experimental spending spree of $2.3 trillion via QE1 and QE2 to lower the jobless rate hasn't worked. The Department of Labor's headline unemployment rate has been stuck above 8% for 43 consecutive months! But the ever stubborn Fed thinks QE3 will do the trick.

The real impact of QE hasn't been on the broader economy but on asset prices.

Everyone's been talking about the surge in precious metals (GLTR - News) like gold (IAU - News) and silver (SLV - News), what about miners? Both large and small cap mining stocks (GDX - News) have outperformed metals over the past month. The ETF Profit Strategy Newsletter identifies other overlooked assets that are shooting higher because of QE3. 

U.S. Treasury prices (IEF - News) were one of the few areas that posted declines and the yield is 1.72% for 10-year bonds.

The Fed's QE3 sets the stage for continuation of another major investment theme: An extended period of low interest rates through 2015. This will put even more financial pressure on investors in fixed income products like bonds (BND - News), bank CDs, and money market funds. 

I've encouraged our readers to avoid the danger of plowing into high yield/high risk investments. There are much safer ways to achieve higher income, without putting your principal in front of a firing squad. So far this year, our all ETF portfolio, the Income Mix, has generated over $7,700 or 7.70% in annual income, using a lower risk strategies.

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