Friday, April 29, 2011

The US Federal Reserve Speaks with "Forked Tongue"

Gold in New Zealand dollars: $1913.30 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $60.30 per oz
Previous all time high: $48.58
per oz

What are we to make of all the announcements coming out of the US Federal Reserve Bank yesterday?

From my reckoning, Mr Bernanke seems to be speaking with a "forked tongue" (I like this phrase, used many times in the old Westerns I used to watch)

There are comments about higher commodity prices and rising inflation, but then comments about inflation trends being 'subdued' and inflation expectations 'stable'.

Which is it to be? Inflation or no inflation. Subdued or stable?

Well, I ask you to stop, take a breath, and be still.

Think of the last time you went to the Supermarket and bought groceries. Did you come out with great glee and laughter, noticing weird side-glances from passers-by, happy in the thought that prices had now dropped and you could buy that new TV or pay off some more mortgage.

No, then what about when you last filled the car's gas tank? Didn't notice the litres or gallons ticking by slower than the dollars again?

Now look at the gold and silver markets as Mr Bernanke spoke. Seems both didn't believe the 'subdued' story either. Gold in US dollars is now at record highs.

No one believes the Fed's inflation story and no one, that I have read, can tell me where they will get the funds to keep the US Governments borrowing costs low, now that they have announced the end of QE2 (money printing 2).

The Fed will have bought $600 billion (USD) of US Treasury debt from July last year to June this year. Can you see interest rates staying where they are in order to entice bond buyers to buy Treasuries? Not likely. The costs of US Government debt will soar and the US dollar value will tank.

This will cause many problems worldwide. For example, our New Zealand dollar is rising, but that too is a mirage. It's actually the US dollar falling in relation to it. Where does a true store of value reside now?

The Federal Reserve seems now lost for policy and has thrown decisions back to Mr Market. His prompt reply.

Buy assets of lasting value that preserve wealth.

Articles of interest:

QE3 or not QE3? That is the Question

See article here
Phil's Stock World

Are You Smart Money?

See article here
Casey Research

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