The Fed: QE doesn't work… Jeff Clark says gold and coal are going higher…

 The S&P 500 is up 150% since the market bottomed following the 2008/2009 financial crisis. Today, it's about 1% away from a new all-time high.

The reason for this – why stocks have soared since our financial system came close to total collapse – seems obvious to us…

Our government brought interest rates near zero percent and printed trillions of new dollars. The low interest rates forced people to flock to riskier, higher-yielding assets. The trillions of new dollars ensured an even greater wave of cash flooded into assets.

Put another way, quantitative easing (QE) boosted markets.

But has QE done anything other than boost paper asset prices? Has it generated real demand from consumers or boosted GDP and reduced unemployment by any meaningful amount?

 We've long been wary of QE… We don't believe the way to cure debt is with more debt. Now, it seems, the Federal Reserve – the government agency responsible for QE – agrees with us. A research piece published yesterday by the Federal Reserve Bank of San Francisco says the effects of QE on economic growth are minimal. The piece concludes…

Asset purchase programs like QE2 appear to have, at best, moderate effects on economic growth and inflation. Research suggests that the key reason these effects are limited is that bond market segmentation is small.  Moreover, the magnitude of [large scale asset purchases] effects depends greatly on expectations for interest rate policy, but those effects are weaker and more uncertain than conventional interest rate policy. This suggests that communication about the beginning of federal funds rate increases will have stronger effects than guidance about the end of asset purchases.

 
You can read the full paper here.

 Of course, whenever the Fed starts to wind down its asset purchases, these findings will prove to be convenient… According to the Fed, the money printing isn't the important part. What really matters is keeping a low federal funds rate – the rate banks charge each other to borrow money deposited at the Fed…

How do [large scale asset purchases] effects compare with those of a conventional federal funds rate cut? Figure 2 shows the effects of a standard 0.25 percentage point temporary federal funds rate cut. GDP growth increases about 0.26 percentage point and inflation rises about 0.04 percentage point. This suggests that a program like QE2 stimulates GDP growth only about half as much as a 0.25 percentage point interest rate cut.

 We'd argue the market has already adjusted for a near-zero federal funds rate. We can't go any lower. And according to the Fed, money printing doesn't grow the economy, either… So what's left?

 That question is one reason we've seen recent strength in the gold markets. And our colleague Jeff Clark, who's been anticipating a bounce in the oversold precious-metals market, said prices could go even higher.

And in today's Growth Stock Wire, he encouraged readers to pay attention to another commodities market that's been booming…

All eyes are on gold stocks right now – and they should be. Gold stocks are ripping higher. The rally I told you about in the gold sector is well underway. The Market Vectors Gold Miners Fund (GDX) is up 16% in just the past three trading days. It's trading above its 50-day moving average (DMA). Over time, GDX should move up toward its 200-DMA, near $35. But it's not just the stocks of companies mining the shiny yellow metal that are on a tear. Coal stocks are rallying, too…

 As you can see from the chart below, coal stocks have been crushed…


Jeff says a bottom may be forming… and we could see 15% more upside from here.