The Biggest Lie in Finance Today

So it’s all about stocks?

 

Our esteemed Fed Chairman, now claims that QE has helped by raising stock prices. That was never a reason he listed for launching QE before. In fact, this is the first time he’s even mentioned this as a benefit (though everyone with a thinking brain knows that the Fed doesn’t give a hoot for anyone other than Wall Street which is why ALL of its moves were intended to help them juice the markets).

 

Why is he suddenly saying this?

 

It’s simple, because the market has proved he’s either incompetent or a liar (likely both) when it comes to QE. After all, he repeatedly said the reason we needed it was to boost employment and lower interest rates.

 

Well, 7.3 million people have lost their jobs since the Bear Stearns collapse. The Fed claims that this number would have been a lot worse without QE. It’s a pretty brilliant argument considering that there is no alternate universe where the Fed didn’t employ QE to compare to, so there is literally no evidence that refutes the Fed’s claim.

 

However, the fact remains that we spent over $2 trillion and still lost 7.3 million jobs. Hard to see the success rate of that policy. And given that the only folks hiring and raising salaries and bonuses right now are Wall Street firms, it’s pretty clear which demographic QE has TRUTHFULLY benefitted from an economic perspective.

 

As for QE keeping interest rates low, like I said, Bernanke is either incompetent or a liar. Given the abysmal performance QE has had in containing interest rates, I’d say it’s both:

 

 

As you can see, interest rates have soared BOTH times the Fed implemented a new QE program. On top of this, we now have direct evidence that the Fed’s policies are

actually killing people... literally.

 

In case you’ve missed it, food riots are spreading throughout the developing world Already Tunisia, Algeria, Oman, and even Laos are experiencing riots and protests due to soaring food prices. 

 

As Abdolreza Abbassian, chief economist at the UN’s Food and Agriculture Organization (FAO), put it, “We are entering a danger territory.”

 

Indeed, these situations left people literally starving… AND dead from the riots.

 

And why is this happening?

 

A perfect storm of increased demand, bad harvests from key exporters (Argentina, Russia, Australia and Canada, but most of all, the Fed’s money pumping. If you don’t believe me, have a look at the below chart:

 

 

As you can see, it wasn’t until the Fed announced its QE lite program that agricultural commodities exploded above long-term resistance. And in case there was any doubt, QE 2 sent them absolutely stratospheric.

 

In light of all of this, it’s no surprise that Bernanke is now fishing for any justification for his insane policies. However, even his claim that QE has pushed stocks higher is a big fat lie as MOST of stocks’ gains have been a direct result of inflation or decreased purchasing power.

 

Indeed, in nominal terms, stocks have rallied 91% since their March 2009 low. However, when you account for Dollar devaluation by pricing stocks in Gold, you  find that nearly two thirds of stocks’ gains have come as a result of the US Dollar lowing purchasing power. Put another way, stocks have only rallied 31% since their March 2009 in REAL terms.

 

 

And it looks as though stocks are about to drop even MORE in real terms.

 

 

As you can see, stocks have outperformed Gold since December. However, priced in Gold they’ve recently been rejected at long-term resistance. to 0.925 if not 0.90 (meaning Gold would greatly outperform stocks on a relative basis).

 

Indeed, while I think stocks are more than overdue for a correction, I view the latest pullbacks in Gold (and Silver) as MAJOR buying opportunities for both inflation hedges.

 

Let’s be blunt, the Fed is going to do one thing and one thing only: print money. And while stocks might benefit somewhat from this, inflation hedges like Gold and Silver will positively EXPLODE higher.

 

After all, while stocks are up only 31% in REAL terms, Gold has soared 58% while Silver has more than DOUBLED. One can only imagine the returns investors will see in the coming years as the world’s central banks (lead by the Fed) print us into oblivion.

 

Good Investing!

 

Graham Summers

 

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