The World's Central Bankers Have Gone Mad

Europe fires its 'bazooka'... More QE and negative interest rates are here... The central bankers are insane... The best buying opportunity in years...

According to the financial media, European Central Bank ("ECB") President Mario Draghi pulled out the big guns this morning...

In a statement following the ECB's March meeting, Draghi announced a major change to the bank's open-ended quantitative-easing ("QE") program.

In particular, Draghi said the ECB would now be buying 80 billion euros of bonds every month. That's an increase of 20 billion euros a month, topping expectations of an increase of 10 billion to 15 billion euros. The program is also expanding to allow the central bank to purchase investment-grade European corporate bonds.

For comparison, at the peak rate of QE here in the U.S., the Federal Reserve was buying approximately $80 billion a month for a little more than a year. As of this morning, the ECB has matched that rate... and there's no end in sight.

In addition, Draghi announced that the ECB was slashing interest rates again. Most notably, the central bank pushed deposit rates – the rate it charges commercial banks to keep their extra reserves at the ECB, which was already negative – even further into negative territory, from -0.30% to -0.40%. Draghi also announced a new program of "cheap loans" to European banks, which the ECB hopes will stimulate lending to businesses and consumers.

As one money manager put it to the Wall Street Journal, "This has all the hallmarks of the ECB having thrown the kitchen sink at the problem."

We couldn't help but wonder, though... What if the kitchen sink isn't enough?

In response to the news, European stocks rallied... about 2%. Not exactly the reaction you would expect after Draghi's long-awaited "bazooka." Worse, the rally didn't even last the day...

European stocks – as represented by the STOXX Europe 600 Index – closed the day down 1.7%. Likewise, the euro initially fell 1% against the U.S. dollar, but reversed and soared higher to end the day up nearly 2%.

In other words, despite a massive effort to boost asset prices and weaken Europe's currency to stimulate inflation, the ECB's actions today had exactly the opposite effects.

It appears the world is finally waking up to something we've been saying for years: The world's central bankers have gone mad.

Following the last financial crisis, they doubled down on the same foolish policies that led to the crisis in the first place.

After all, if "easy money" and low interest rates were the solution, Japan should be booming.

Its central bank – the Bank of Japan – has kept short-term rates below 1% since 1995... more than 20 years now. Yet its economy has been in and out of recession ever since.

It's a similar story with quantitative easing...

We've discussed the problems with QE many times since the Federal Reserve kicked off its version of the program back in 2008. In short, while these programs helped push prices of stocks, bonds, and other assets higher, there's little evidence they've done much at all to help the real economy.

The U.S. economy is still officially growing, but it's hardly booming. And despite years of QE in Europe and Japan, both regions continue to struggle.

Meanwhile, these insane policies have helped create a whole new bubble of debt around the world... and made it impossible for most folks to earn a decent return on their savings without taking big risks.

In short, central banks have forced us all into the largest financial experiment in history. And it's becoming more and more apparent they have absolutely no clue what they're doing.

Just look at the last few months of statements from the Federal Reserve...

Incredibly, it was less than three months ago when the Fed decided to raise interest rates for the first time in years. It also told us it expected to increase rates several more times this year... and a total of 18 more times over the next three years.

By late January, Fed officials were already saying it would be unwise to continue to hike rates, and said a rate cut could be coming instead. Some even suggested the Fed could push rates negative (like Japan and Europe have already done).

And just this week, we heard the Fed has changed its mind again. According to a report in the Wall Street Journal, the Fed says it could raise rates again as soon as next month.

Unfortunately, we don't expect this trend to improve. If anything, central banks are likely to become more erratic and desperate as it becomes clear their usual "tricks" are no longer working. And there's no telling what desperate central banks might do...

We've already seen Japan and Europe make the unprecedented move into negative interest rates. And as we just mentioned, it's possible the Federal Reserve could join them.

This is concerning... But not necessarily for the reason most folks believe.

When most people hear about negative rates, they assume this means depositors – folks like you and I – will be charged a fee to keep our money in the bank. But that may not be the case. (We're preparing a detailed look at the potential effects of negative interest rates for a future Digest.)

What it does mean is that earning a decent return on your savings is likely to get even harder going forward.

It also means more and more folks are likely to turn to the relative safety of gold. As our colleague Steve Sjuggerud recently explained to his True Wealth Systems subscribers...

The recent rally in gold may be the first sign this is already playing out...

As we've discussed, gold is due for a correction after its sharp 20% rally to start the year. But several Stansberry Research analysts believe the rally is just getting started... and the next several weeks are likely to offer one of the best buying opportunities in years.

If you still don't own enough physical gold, we urge you to consider buying some today, and to have cash ready to buy more soon.

We'd also recommend putting a small portion of your portfolio in the world's best gold stocks. If gold rises as expected, these stocks could absolutely soar.

And if you're looking for help with gold stocks, there is no better guide than our friend John Doody and his excellent Gold Stock Analyst advisory.

John is the most knowledgeable gold-stock analyst in the entire industry, and his track record speaks for itself... From 2001 to 2015, John's proprietary strategy returned a 369% gain, beating the performance in gold, gold-stock funds, and the S&P 500.

You can learn more about John's research, and how to claim a special offer for Stansberry Research readers, right here.

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A couple of Stansberry's Credit Opportunities subscribers share their thoughts on yesterday's big news... and several more readers respond to Porter's recent request. As always, send your e-mails to feedback@stansberryresearch.com.

"Thanks to the Stansberry Crew: Yay! I watched my Iconix bonds zoom from 93 past 98 today, presumably due to the refinance announcement explained in [Wednesday's] Digest. Thanks for Stansberry's Credit Opportunities. Looking forward to more like this!" – Paid-up subscriber Steve P.

"Porter, I was very excited to read the Digest today. I purchased an initial amount of $20,000 of the Iconix bonds at 92. I then purchased another $10,000 tranche at 79, $5,000 at 82, and $5,000 at 84. The second $20,000 was purchased after your update wherein you said you were positive the company would have the ability to refi. In June, I will have made not including interest, over $7,000 on a $40,000 investment in just over 6 months if my calculations are correct. Feel free to calculate that on an annualized basis. Thanks. I'm loving the service." – Paid-up subscriber Charles T.

"Porter, thank you for your flu story. I've always believed that our greatest riches lie within our family ties. Memories of good times together, adventures shared as well as responses for help or assistance are often priceless. Sharing your experience places you on a level much higher in your reader's esteem than you may realize." – Paid-up subscriber A. Rutherford

"Good evening. I am in the process of reading today's newsletter. I have never written before and just wanted to let you know how much I value the information and advice you give. I get several of your newsletters and they all are very valuable to me. At this time, the more expensive premium services are beyond my reach. My wife and I really took a major hit to our investable funds during the real estate bust. I had been mostly in the stock market before the crash, mostly trading option spreads for income and holding a few quality companies for a more long term strategy. I saw trouble coming in 2005 to 2007 so I got out of the market from fear.

"Being from Florida, I saw nothing safer than Florida real estate at the time. I had been investing in real estate for 40 years. No one in my circle saw the real estate bust coming. Oh, we have seen other periods where prices pulled back some or were flat for a short period, but nothing like we went through. So now I am down to $40k that I consider my investment money. We have all our necessities covered by pensions so no worries there. I am still really gun shy but your advice and newsletters are slowly bringing my confidence back to dip my toe in the water.

"I like the lower risk aspect of selling puts on stocks I would like to own. I also like the possibility of selling covered calls on that same stock if I end up owning it. I will probably limit myself to $5000 for this effort now. If the stock is too expensive for me then I might use a spread to affect the income without having to buy the stock, or if not comfortable, just wait for the next one. I just wanted to say thanks and keep the great advice coming. Us small investors appreciate it greatly. Thanks." – Paid-up subscriber Frank H.

"Porter, just wanted to say thanks to you and your team for a unique, valued, and helpful bundle of information. I especially like your business model and I value the principles on which your business is founded. thanks again." – Paid-up subscriber Dave B.

"Porter, I just wanted to write a short note to let you know how much I appreciate your efforts. I've been an Alliance member for about 4 or 5 years. Don't remember exactly. I do know that everything you wrote and talked about, since I signed up, has proven true. I just wish I had listened and learned better at the start. You know, done more learning than waiting to be taught.

"Of all the writers at [Stansberry Research] I think I enjoy your writing the most. It probably has a lot to do with the fact that we seem to see things happening in the world in a similar light. I know that what you're writing is what you're thinking. I may be wrong, but I sometimes think some of the other writers don't really put their true thoughts out, maybe because they may not be PC? For some I'm sure they just have a very different perspective on what is happening in the world today. In any event, it's harder to follow someone if they seem to be headed in a different direction. I still do appreciate hearing their perspectives. Please keep writing the way you do and, if you can, write a little more. And I'm definitely willing to learn all you want to share." – Paid-up subscriber Steve

Regards,

Justin Brill
Baltimore, Maryland
March 10, 2016