Monetary stimulus leaving average Americans and precious metals behind

Millions of Americans feel as though they are being left behind while the disparity between themselves and the rich continues to grow.

Over the last few years, the Federal Reserve has enacted the most aggressive monetary stimulus program in the central bank’s history. But even with the Fed’s trillions of new dollars thrown into the economy, most Americans do not feel any more financially secure or wealthier than before.

Now, when we look at the stock market, one could easily assume that the monetary stimulus brought on by our central bank is having a positive impact.

Let’s take a look at another country whose central bank has also been pushing a very easy monetary stimulus program for years; of course, I’m talking about the Japanese central bank.

We all know the Japanese economy has been in a slump for multiple decades. If monetary stimulus were the answer to all ills, why is Japan’s economy still weak? Let’s take a closer look at the average Japanese citizen for the answer.

According to a report by Japan’s central bank, 31% of Japanese households have no financial assets—a new record-high. This survey has been conducted since 1963. (Source: Bank of Japan web site, last accessed November 12, 2013.)

How could this be? The central bank in Japan has been pushing a very aggressive monetary stimulus program, which has led to a drop in the value of the country’s currency and an increase in the stock market in Japan of approximately 60% this year.

While monetary stimulus by the central bank did help push up stocks, it has done nothing for wages in Japan. Almost 41% of those surveyed reported that the reason why they had to pull money out of their savings was due to a lack of income growth from wages.

What’s the lesson?

We keep hearing from every central bank that if they could continue pumping monetary stimulus (money printing) into the economy, this will lead to a stronger jobs market and wage gains and everything will be perfect.

But looking at the actual evidence, we still do not see any wage growth in America or Japan. Both the Japanese and American central banks have put on massive monetary stimulus programs and still, no increase in incomes for the average citizen.

However, stock markets in both nations have soared. The wealthy have a large percentage of their assets in the stock market, and they have benefited. The average American, whose primary income comes from wages, has fallen behind.

You cannot get higher wages without a stronger jobs market and greater job gains. We need to hire millions of Americans before incomes begin rising.

When a central bank is determined to create inflation through monetary stimulus, I think it would be foolish for investors to ignore this. While inflation is still relatively low now, monetary stimulus means that the worst place for an investor to be is sitting on cash.

If a central bank is successful in creating higher asset prices, this means that everyone needs to have some investments that will also move up in value. We’ve already seen the stock market benefit; I would look to places where there is more room to the upside, such as precious metals.

For the long term, I always try to buy when others are selling and sell when others are buying. Investors are buying heavily into the stock market, while gold and silver are languishing. This is the perfect time to be rebalancing a well-diversified portfolio. Investors should consider taking profits in stocks and adding to the precious metals component of their portfolio.