Celebrating QE2, Republican Victory, Bush Tax Cuts

11/05/2010 06:51 pm ET | Updated May 25, 2011

All those investors who liquidated stocks for bonds must be licking their wounds after the great reflation of assets was inaugurated this week. The Bernanke Bump, the well-orchestrated promotion of Quantitative Easing along with the debasing of the dollar have been driving commodities, emerging markets and precious metals into a frenzy.

The Bush tax cuts will survive. QE2 wasn't a surprise at all. But the better than expected results for Republicans in Congress prefigured an Obama compunction to compromise with his opponents. A very fiscally necessary surprise gift for investors.

The tax on the sale of stocks, bonds and other assets--what we call the capital gains tax--will remain at the at the historically low rate of 15%, as proposed by the George W. Bush administration in 2003, when the tax cuts were passed in order to improve the lot of investors after bear market of 2000-2002. In fact, the lower tax led to a greater number of transactions and far large tax revenues for Uncle Sam. For 2011 at least, and maybe longer, the capital gains tax will remain at 15%--not double or triple that, as the Obama administration was threatening.

So refocus your animal spirits on high-yield bonds (through the iShares High Yield Corporate Bond Fund ( HYG -- news -- people ), stocks that have a record of increasing their cash dividend for the past 25 years (the SPDR S&P Dividend ETF ( SDY - news - people )), and REITs that pay out a high percentage of their income in dividends.

Gold lovers must have woken up Thursday to celebrate QE2, a printing of more dollars with the purpose of driving the price of assets into the wild blue yonder. As a joyous occasion, Gold is still relatively inexpensive in comparison with the Dow Jones industrial average. If gold continues to run up, major gold miners like Randgold Resources ( GOLD - news - people ) could move up at a multiple of two to three times the price of bullion.

According to U.S. Global Investors ( GROW - news - people ), a mutual fund group in San Antonio, Texas, another, smaller gold holding that hasn't run up as much is Medoro Resources, a Colombian gold producer (MRS), according to Frank Holmes, U.S. Global's CEO.
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In the metals area, copper producer Freeport-McMoRan Copper & Gold ( FCX - news - people ) has run up mightily since the summer, from $60 to $105, and is still selling at only 12 times earnings. A classic example of a stock you must hold for the big move: Its copper reserves are being funneled off to China ever more quickly and at rising prices.

Here's the November Irony to remember: QE2 seems a reward from Ben Bernanke to investors, speculators, gold and silver fanatics and the holders of currencies that rise as the dollar falls (Australia, Singapore, Korea, Brazil).