Alan's Finance Blog

Ron Paul – The Fed Twists, The Market Shouts

Last week the Federal Reserve began the second incarnation of “Operation Twist”, an attempt to drive down interest rates by purchasing long-term Treasury debt and selling short-term debt. This is just the latest instance of the central bank desperately flailing around doing something merely for the sake of doing something. Fed officials still do not understand– or admit– that the Fed itself caused the financial crisis by driving interest rates too low and relentlessly expanding the money supply. Thus, this latest action will just exacerbate the problem.

Markets, however, understand that the Fed has failed and has no clue what it is doing. This is why markets went into a tailspin after the Fed’s new strategy was announced. Stock, bonds, and commodities dropped in price while the financial press wondered whether this worldwide sell-off meant that the entire system was collapsing. Not since 2008 had there been such a dramatic drop across so many different sectors of the market.

Because of continued rising inflation and the Federal Reserve’s suppression of interest rates, investing in traditional safe havens such as savings accounts, mutual funds, and Treasury bonds has become unprofitable. Lots of money is moving through the system seeking a return on investments or at least some measure of safety, as increasingly desperate investors move their funds around in search of long-term profits and stability. Until the Fed stops its monetary intervention and allows interest rates to be set by the free market, investors will move their money in a volatile manner. They will invest in commodities and stocks while prices swing upwards, but will flee to bonds and cash at the first sign of a downturn.

The uncertainty caused by the Fed does help some people – professional traders on Wall Street for example. Increased volatility and huge price swings mean more opportunities for profit, as sophisticated electronic trading programs can buy and sell huge positions within a fraction of a second of a major market movement. But small businessmen are misled by the artificially low interest rates into making unwise investments, and those whose jobs vanish when the Federal Reserve’s latest bubble pops suffer. Without the knowledge or ability to move with the markets or diversify overseas, average Americans see their savings stagnate or depreciate– along with their hopes and dreams for a better tomorrow.

The only way to return to a sound economy is for the Federal Reserve to cease and desist its monetary manipulation and allow interest rates to be determined by markets, just as the price of goods, services, and labor should be determined by markets. Everything the Fed is doing by pumping money into the economy benefits only the insolvent, too-big-to-fail banks. Low interest rates encourage consumers to take on more debt, meaning more profits for the banks issuing those loans. Purchasing mortgage-backed securities, as the Fed has done, keeps housing prices inflated, helping the banks who have non-performing mortgages on their books. However, it hurts consumers who continue to be priced out of the housing market. In order to maintain a decent standard of living for the American people and to restore the vibrancy of the U.S. economy, it is time to end the Fed.

Ron Paul

BOE, ECB Put Pressure on Fed; Four Ways to Profit!

Mike Larson

The list of opponents to the Federal Reserve’s “easy money forever” policy is growing longer.

In the U.K. … we learned that the Bank of England is tilting more to the hawkish side. Policymaker Spencer Dale joined colleague Martin Weale in actually voting for a 25 basis point hike in the BOE’s main policy rate, currently 0.5 percent. The more aggressive Andrew Sentance went even further, pushing for a 50 basis point hike.

While five members of the bank’s policy-setting committee voted for no change … carrying the day … the future direction of U.K. rates looks all but certain. And no wonder! U.K. consumer prices are rising at a 4 percent year-over-year rate.

Trichet’s comments raised speculation that the ECB may be eyeing a move on interest rates.

In continental Europe … the European Central Bank is positioning for a change in policy too! ECB member Yves Mersch warned that his colleagues will “have to rebalance our monetary policy stance” soon with the economy picking up and inflation topping the bank’s target.

President Jean-Claude Trichet also reiterated his resolve to combat inflation. And again, I’ll say “no wonder!” Inflation in the euro zone climbed to 2.4 percent in January, above the bank’s 2 percent target.

In other emerging and developed markets worldwide, the rate-hiking trend I first discussed months ago is accelerating. In just the past several days, Sweden raised its benchmark rate for the fifth time in seven months to 1.5 percent … Chile hiked rates again to 3.5 percent … Israel boosted up by 25 basis points to 2.5 percent … while Vietnam jacked rates up for the second time in a week to 12 percent.

As Fed Zigs While Foreign Bankers Zag,
Consequences and Opportunities Pile Up

Yet here in the U.S., it seems like nothing much has changed. The “doves” still have the upper hand, with Chicago Fed president Charles Evans signaling this week in an interview with the Financial Times that he’s in the Ben Bernanke camp. Specifically, he said “policy ought to remain accommodative for really quite a while, even a while after conditions start to improve.”

There’s a reason I keep harping on these interest rate trends. They have serious consequences for all kinds of investments, from commodities to currencies to bonds …

First, the shift toward tighter monetary policy that’s already underway in emerging markets — and about to get underway in the U.K. and Europe — will likely flatten the yield curve. Or in plain English, shorter-term rates should climb more quickly than long-term rates as investors price in the likelihood of central bank rate hikes. That’s why the iPath U.S. Treasury Flattener Exchange Traded Note (FLAT) I highlighted a while ago is perking up.

Second, the increasing divergence between the views of U.S. policymakers and foreign ones should hurt the value of the dollar. That makes foreign currencies and debt securities more attractive. So do the relatively more attractive interest rates available overseas. That’s why I prefer emerging market bonds and funds that own short-term overseas debt securities, like the Federated Prudent DollarBear Fund (FPGCX), over U.S. Treasuries.

You can expect gold and silver prices to rise as inflation concerns mount.

Third, monetary metals such as gold and silver should continue to perform well. I say that because even with rates rising overseas, they’re well below published rates of inflation. That means “real” rates, or those adjusted for inflation are negative — historically a bullish signal for commodities. Consider the U.K. example, where you have a real rate of MINUS 3.5 percent (the 0.5 percent policy rate minus the 4 percent YOY increase in consumer prices)!

Fourth, if you’re looking for more specific investment ideas and recommendations, consider subscribing to my Safe Money Report. What I’ve outlined here is just a few pages from my playbook … and I think 26 cents per day is a small price to pay for the rest!

Until next time,

Mike

Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money, Interest Rates Profits and LEAPS Options Alert. He is often quoted by the New York Sun, Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.

What Most People Don’t Realize About The Fed’s Superpowers

Bob Prechter’s Conquer The Crash reveals whether the Fed really can rescue the US economy

By Elliott Wave International

Since its creation in 1913, the primary intended role of the U.S. Federal Reserve Bank has been that of protector. In theory, the central bank was bestowed with the power to shape monetary policy in a way that would keep both booms and busts in check. The two main tools at its disposal — interest rates and money creation — would provide a “ceiling of normalcy” above expansions AND a “net of safety” below contractions.

To this day, the financial mainstream holds great faith in the Fed’s ability to fulfill its save-the-day duties — as these recent news items make plain:

• “Why Raising Fed Funds Rate Is Positive For Equities.” (Seeking Alpha)
• “Fed’s Moves Lift All Asset Classes.” (Associated Press)
• “US Stocks Erasing Losses: The aggressive moves of the Fed have been an important driver for the stabilization of stock prices.” (Bloomberg)

But of all the variables the Fed creators took into account, there’s one glaring factor they neglected to consider: Namely, it cannot force consumers to spend, creditors to lend, or businesses to borrow. The events of 2007-2009 “credit crunch” and the subsequent “Great Recession” made that obvious. Remember how the government was upset at banks for sitting on the bailout funds instead of lending them out to consumers? And consumers weren’t exactly lining up on the street to get a loan, either.

The Fed’s inability to change social mood is the central theme in Chapter 13 of EWI President Bob Prechter’s NY Times business bestseller book Conquer the Crash. There, Bob describes the Fed’s strategy of lowering the federal funds rate to stimulate spending to be as effective as “pushing on a string.” Writes Bob:

“The primary basis for today’s belief in perpetual prosperity and inflation with an occasional recession is what I call the ‘Potent Directors Fallacy.’ It is nearly impossible to find a treatise on macroeconomics today that does not assert or assume that the Federal Reserve Board has learned to control both our money and our economy. Many believe that it also possesses the immense power to manipulate the stock market. The very idea that it can do these things is false.”

And so begins one of the most groundbreaking studies into the very real INABILITY of the Fed to fell the great bears of economic declines, or to feed the great bulls of economic vigor.

The best part is, you can read Chapter 13 of Conquer the Crash in its entirety FREE via a Club EWI resource “You Can Survive And Prosper In A Deflationary Depression.” The free report also includes SEVEN other chapters of Conquer the Crash that shed equal light on some of the most misleading notions of mainstream economic wisdom.

The Fed’s Secret Third Mandate Just Revealed!

Officially the Federal Reserve System has a dual mandate: Promote price stability and maximum employment. Now it has admitted to a third one. More on that in a moment. First, a quick review …

Two weeks ago I took on the modern central bank propaganda that wants us to believe inflation is the increase in the general level of prices of goods and services in an economy over a period of time due to positive growth.

As I wrote in that January 19 column, that’s a blatant lie — an attempt to conceal what really causes inflation.

Inflation is simply an increase in the money supply. And rising prices are but one of three possible symptoms of money supply growth. The second is speculative bubbles. And the third is an unstable economic structure.

This third symptom is probably the least understood.

Increases in the money supply seduce entrepreneurs into investments that appear profitable only because of artificially low interest rates. As soon as the central bank is forced to reverse course — usually due to rising prices — these malinvestments become obvious and have to be abandoned.

When the economic boom brought about by the central bank’s money supply increase comes to an end, a recession begins. The larger the money supply growth, the larger these malinvestments, or imbalances, that will sooner or later have to be corrected.

And now …

The Fed Has Laid the Cornerstone
for Another Severe Recession

The current economic cycle is built on the Fed’s largest increase in its monetary base in history. And interest rates have been held near zero since December 2008 — indeed, a very long time.

This policy of quantitative easing and near zero interest rates is highly inflationary. Its effects will become visible with time lags. Malinvestments will blossom, and huge imbalances will indeed develop.

They will likely come when rising prices become a problem in the U.S. and Europe — like they already have in China and other emerging economies. Or when the next asset bubble becomes more obvious. Or when the next recession gets going and turns out to be even more severe than the last one.

No matter which event brings the kettle to a boil, one thing is for sure: The Fed has fertilized the ground for the next severe crisis.

What the Fed Has Not Achieved …

The current economic rebound is a very weak one. Compared to other post-WWII business cycles the current boomlet is far behind, no matter which economic indicator you use: GDP growth, retail sales, industrial production or durable goods orders. And if you look at housing market related indicators or the labor market, the picture is getting very bleak.

So with all the Fed’s money pumping and the enormous budget deficits, our politicians have bought us the weakest economic rebound ever. And with unemployment rates as high as they are now you have to conclude that the Fed — and the accompanying fiscal stimulus programs — have failed miserably.

Just look at the following chart from the U.S. Bureau of Labor Statistics. It compares the development of employment to population after the past five recessions.

As you can see, the current period is dreadfully weak. You can also see we are on the verge of hitting a new low in this important indicator of economic well being.

For Main Street the employment situation marks the difference between boom and bust. In this regard the largest fiscal and monetary stimulus program ever has fallen flat on its face.

But there is also another major negative: The government’s debt binge.

Budget deficits have gone through the roof with absolutely no end in sight! And they have the potential to wreak havoc not only with the current economic rebound but in the future as well. The longer we wait to address this problem the more hardship it will finally bring.

What the Fed Has Delivered

Fed Chairman Ben Bernanke made a rather pitiful impression during a recent CNBC interview. Steve Liesman announced he would ask a few hard-core questions. Well, to a certain degree he did.

But he did not ask how money printing could ever create wealth — or employment. He also didn’t ask how anyone, besides the market, could ever know the “right” interest rate for a whole economy. Nor did he bother to ask about the Fed’s role in pumping up the housing bubble.

But he did ask how Bernanke could claim QE2 was a success since both interest rates and commodity prices have risen considerably since he first announced it.

Bernanke’s response:

“Policies have contributed to a stronger stock market just as they did in March 2009, when we did the last iteration of this. The S&P 500 is up 20% plus and the Russell 2000, which is about small cap stocks, is up 30% plus.”

The Fed credits QE for rising stock prices.

So finally it is official. The Fed has secretly adopted a third mandate by aiming directly at making stock prices rise via its quantitative easing policy. Obviously, Bernanke and his brethren haven’t learned a darn thing from two successive bubbles and their aftermaths. Now they’re actively going for the next one.

If the stakes weren’t so high, I could actually smile in the face of so much ignorance. But these wrong-headed policies are massively influencing the well-being of the whole country, your wealth and your financial future.

How to Protect Yourself and Profit
from the Fed’s Inflationary and
Destructive Long-Term Policies

First, look into adding gold to your portfolio. Gold is currently in a normal and healthy correction, and it might not be over yet. But in light of the Fed-induced unstable economic structure that’s bound to collapse, you might consider a gold exchange traded fund, such as GLD.

And second, if you want to learn more critical background information about money printing, asset bubbles, opportunistic central bankers, and government debt and what this all means for your financial health, I suggest you get a copy of my new book, The Global Debt Trap. Click on your choice of bookseller to order it online — Amazon— or stop by your nearest bookstore.

Best wishes,

Claus

Ben Bernanke Ready to Print Still More!

Dear Subscriber,

The “grand compromise” between the Obama administration and Congressional Republicans to extend the Bush era tax cuts will have two extremely severe repercussions:

First, it means that the federal deficit will EXPLODE beyond the worst estimates of the most pessimistic deficit prognosticators. And in response, interest rates are already soaring, with 10-year Treasury yields jumping nearly a quarter of a point just yesterday!

Second, it means that Fed Chairman Ben Bernanke will be under even greater pressure to run the printing presses.

Never forget his famous speech of early 2002, “Deflation: Making Sure It Doesn’t Happen Here.”

I have quoted this seminal speech ever since to make sure my readers understand the most basic monetary credo of the most powerful and influential central bank on the planet — one which still serves as a role model for the international central bank community.

I’m sure you’ve read it before. But given the latest rush of events, it behooves you to read it again:

“…the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Since then he has delivered as promised. Take a look at the following chart of the U.S. monetary base:

Source: St. Louis Fed

A Race for the Title “Worst Central Banker of All Time”

In my 2004 book, Das Greenspan Dossier, I predicted that history would identify Alan Greenspan as the worst central banker ever. Well, I’m not so sure about that anymore. Mr. Bernanke has become a serious contender for the title.

First, he fully supported Greenspan as a Fed governor. Both were reluctant to recognize the huge stock market bubble and had no clue regarding its true implications. Both deemed it the right policy to fight the aftermath of the stock market bubble by creating an even bigger bubble, this time in housing … which again both central bankers failed to discern.

When it came time for Greenspan to retire, Bernanke easily stepped into his shoes. He seamlessly continued with the same reckless policy and does so to this very day.

They followed the same reckless script Greenspan had written before, only with far higher stakes. Bailouts and money printing have been hailed as the proper remedy for a disease that would never have existed without bailouts.

Talk about “Quantitative Easing”
Obfuscates the Truth

Instead of directly talking about the government’s monetary printing press, Mr. Bernanke talks euphemistically about “quantitative easing.” He obviously wants to sound more scientific and veil the reckless core of his policies. But he keeps his track record intact.

Currently, he is on a public relations crusade to sell the second round of quantitative easing (QE2) to the public. Only a few days ago he stated for the record that if he feels the need to embark on QE3, he will not hesitate to do so.

Unfortunately, he is not alone. The entire global community of central bankers seems to agree that there is no alternative to this policy. Last week, the president of the European Central Bank (ECB) Jean-Claude Trichet made it clear that he will follow the same road Mr. Bernanke has already taken so decisively.

Bottom line: No end in sight to the money printing, the surge in gold and the profits that investors can make from that surge.

Best wishes,

Claus

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

Bernanke’s Monetary Policy Is Doomed!

Last week Ben Bernanke wrote an article for The Washington Post to justify the Fed’s decision of another round of quantitative easing. Here’s his core argument:

“Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment.

“And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

It looks to me like the world’s most powerful central banker hasn’t learned anything from recent financial history. He seems to resist the overwhelming evidence that the Fed’s bubble-blowing policy since the second half of the 1990s has failed miserably.

And he seems convinced that the current economic malaise can be remedied by more easy-money.

I was critical of Greenspan’s stock market bubble policy of the late 1990s. And in 2004 I wrote the book, The Greenspan Dossier, where I described the state of the housing market and predicted the severe consequences of its unavoidable bursting:

“When the U.S. real estate bubble bursts it will not only trigger a recession and a stock market crash, but it will endanger the entire financial system, especially Fannie Mae and Freddie Mac.”

These predictions were clearly spot on. Now, here we are two burst bubbles later, and the Fed chairman maintains his bubble-creating policies! And in his Washington Post article he clearly tells us he wants to create another stock market bubble to boost consumer spending and the economy.

With unemployment high and inflation very low, Bernanke defended the Fed’s $600 billion bond-buying program.

I think Bernanke’s policy is doomed, mainly because …

The Markets Can Be Stronger
than the Manipulators!

Many stock market participants remember the past decade’s roller-coaster ride when the market lost half its value … twice! And they just might not be willing to be led into the same trap a third time.

So market forces could turn out to be stronger than the central bank’s market manipulation efforts.

And it’s not the first time that has happened …

Years ago many central bankers learned this lesson in the currency markets when their interventions totally failed to change currency trends. And with the Bank of Japan we have a prime example of failed central bank manipulations of the stock market.

As you can see in the chart below, the Nikkei shot up 22 percent following the BOJ’s quantitative easing announcement in March 2001. But the party was a short one …

From May 1, 2001 through September 17, 2001, the Japanese market lost all of those gains — and more — tumbling 34.1 percent.

It’s really ironic …

When the twin bubbles in Japan burst — a stock market bubble followed by a housing bubble — the Japanese authorities answered in exactly the same way their U.S. counterparts are doing now.

They implemented the same fiscal and monetary policies grounded in the same faulty arguments — and failed miserably. Even more ironic is the fact that the U.S. was Japan’s sternest critic.

Here we go: Same problems, same short-term fixes — yet Bernanke is hoping for different outcomes. But given all that ails the economy, I think Helicopter Ben is in for a very unpleasant surprise.

Best wishes,

Claus

For more information and archived issues, visit http://www.moneyandmarkets.com

There Was a Fed Chairman Who Swallowed a Fly

By: Peter Schiff, Euro Pacific Capital, Inc.

While it’s true that history repeats itself, the patterns should always be separated by a generation or two to keep things respectable. Unfortunately, in today’s economic world, it seems the cycle can be counted in months.

On July 24, 2009, just as the Federal Reserve unleashed its first quantitative easing campaign (now called “QE1″ - an echo of the reclassification of the Great War after still more destructive subsequent developments), Fed Chairman Ben Bernanke wrote an opinion piece in the Wall Street Journal to soothe growing concerns about excess liquidity. He assured the public that the Fed had an “exit strategy.”

In a response entitled “No Exit for Ben“, I called the Chairman’s bluff. I argued that the Fed had no exit strategy, and that Bernanke was trying to fool the market into believing that quantitative easing was not debt monetization.

Just 16 months later, Bernanke is at it again, penning another op-ed to defend his second round of QE. Except this time, instead of feigning an exit strategy, he just outlines a path to expand the program in perpetuity.

In recent months, Fed economists have taken great pains to tell us how much better off the economy is now than it was in the first half of 2009. Given this supposed good news, what prompted the current turnaround in policy? Could it be, perhaps, that perpetual easing was the policy all along?

Should we expect another op-ed in a few months in which Bernanke tries to reassure us that QE3 will not over-liquefy the market? How much longer can the Fed play this game before the public and the markets wise up?

The reason I knew QE1 would fail, and that the Fed had no exit strategy (other than more rounds of easing), is because the remedy is totally flawed. If Bernanke’s predecessor, Alan Greenspan, had engaged in prudent monetary policy, we never would have arrived at the point of desperation that made quantitative easing a palatable option. However, we did, and Bernanke’s understanding of economics is so remedial that making the right choice is essentially impossible for him. Now, we are caught in a vicious circle of spending, borrowing, and easing.

In his most recent op-ed, Bernanke rather envisions a “virtuous circle” in which QE2 causes stock prices to rise, which then “boost[s] consumer wealth, and increase[s] confidence.” The wealth effect, in turn, “spur[s] spending and produce[s] higher incomes and profits,” which finally “support[s] economic expansion and promote[s] increased employment.”

Despite the devastation of the Fed’s previous burst bubbles (stocks in ’99 and real estate in ’08), Bernanke still believes in the virtue of pumping. His current policy is to inflate another stock market bubble to cure the recession that resulted from the bursting of the housing bubble, which was itself inflated to counter the effects of the bursting tech stock bubble. Does the story of the old lady who swallowed the fly come to mind? She eventually tried swallowing a horse, and we know how that ended. It’s hard to decide who is more culpable for the strategy: Bernanke for selling it or the country for buying it.

In the 16 months since Bernanke assured us that QE1 would not jeopardize price stability, oats prices are up 40%, concentrated orange juice up 45%, gold and rice up 50%, corn up 55%, coffee up 60%, copper up 70%, sugar up 90%, and cotton and silver up 100%! (The sluggish Dow Jones Industrials are “only” up 30%.)

Last week, Kraft Foods reported a 26% rise in third quarter revenue; however, because of steeply rising material costs, profits actually dropped 8.5% over the same period. If Bernanke is correct in assuming that consumer prices will stay low, the only way Kraft shares could go up would be for the market to assign much higher multiples to lower earnings. You can hope that will happen, but it’s not a wise bet.

Given that QE2 will also push down the dollar against foreign currencies, companies exporting to the US will face the same bind as Kraft. If foreign suppliers don’t raise prices, a weaker dollar will cut into their profits.

My guess is that neither foreign nor domestic companies will take the hit, but pass the costs along to consumers. Rising prices will soon became a daily occurrence on Main Street, not just in the stock market.

For all the wrangling over extending the Bush tax cuts, no one seems bothered by the continuation of the Bernanke tax increases. For the typical American wage earner, the inflation tax will more than offset the benefits of slightly lower income taxes. Savers and retirees will suffer the most as the interest paid on their assets continues to fall and the purchasing power of their principal is eroded.

In reality, quantitative easing will produce the exact opposite of its intended result. In the short-run, it may create the illusion of economic growth and temporarily add some service sector jobs, but once the QE ends, the growth and jobs will vanish. Then, the Fed will most likely try once again to douse the fire it started with another round of QE gasoline, creating an even larger and less manageable inferno. Let’s hope we can change policy before the whole economy burns to a cinder.

Peter Schiff is president of Euro Pacific Capital and host of The Peter Schiff Show.

For in-depth analysis of this and other investment topics, subscribe to The Global Investor, Peter Schiff’s free newsletter. Click here for more information.

Breaking news: Bernanke slams U.S. economy! What to do …

A momentous event just occurred this afternoon:

For the first time in many years, the Chairman of the Federal Reserve went before Congress, set aside his rose-colored glasses, dispensed with most of his sugar-coated platitudes and made some hard-hitting statements about the U.S. economy.

Bernanke on jobs:

“This is the worst labor market since the Great Depression.”

Bernanke on housing:

“The market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction.”

Bernanke on fears about the future:

“Most … viewed uncertainty about the outlook for growth and unemployment as greater than normal, and the majority saw the risks to growth as weighted to the downside.”

Bernanke on tight credit for small businesses:

“Bank loans outstanding have continued to contract. Small businesses, which depend importantly on bank credit, have been particularly hard hit.”

And never forget: All this is coming from a man whose job invariably makes him extremely reluctant to admit to negative trends in any sector at any time — if Bernanke is saying things are bad, you can bet your bottom dollar they’re actually far worse.

Our recommendation:

1. Act on our warnings to greatly reduce your exposure to the stock market, especially in the sectors we’ve been pinpointing as vulnerable to a double-dip recession: Housing and construction, retail, manufacturing, banking and more.
2. Keep most of your money safely tucked away in short-term Treasury bills or equivalent. The return on your money (no matter how low) is not nearly as big of an issue as the return OF your money.
3. To hedge against any threat to the purchasing power of your dollars, maintain a core position in gold — through bullion, a gold ETF or both.

1. Above all, stay safe!

Good luck and God bless!

Martin

The Federal Reserve Does NOT Control the Market

FREE eBook reveals why the Fed is powerless to change the economic course

By Elliott Wave International

As the world’s leading stock markets continue to play stomach-hockey with investors via one triple-digit turn after another, the mainstream community takes solace in this core belief: No matter how uncertain things become, the Federal Reserve can at any moment swoop in to set the economy right.

In reality — the Fed has no such power. This is the revelation of Elliott Wave International’s newest complimentary resource from Club EWI: the 35-page eBook titled “Understanding the Fed.” Including excerpts from the selected works of EWI President Robert Prechter — including his 2002 book “Conquer the Crash” and several past “Elliott Wave Theorist” publications — this riveting report exposes once and for all the most dangerous myths about the Federal Reserve.

Chapter 3 (of the 8-chapter anthology) attends to the “Potent Directors Fallacy” — i.e., the false notion that the central bank is in control of the U.S.’s money, market, and economy — and offers this “Conquer the Crash” insight:

“For recent examples of the failure of the idea of efficacious economic directors, just look around. Since Japan’s boom ended, its regulators have been using every presumed macroeconomic ‘tool’ to get the Land of the Sinking Sun rising again, as yet to no avail. The World Bank, the IMF, local central banks, and government officials were ‘wisely managing’ South East Asia’s boom until it collapsed spectacularly in 1997. In America, the Federal Reserve has lowered its discount rate from 6% to 1.25%, an unprecedented amount in such a short time… What will it do if the economy resumes its contraction; lower rates to zero?“

Note: The underlined sentence above was written in 2002. Today, that forecast has come to fruition after the Fed’s rate-slashing campaign since September 2008 has brought rates to the zero level.

Chapter 3 then goes on to explain WHY the Fed’s monetary policy failed to lift the hot-air balloon of the economy out of the violent credit and housing downdraft. Here, the eBook writes:

“The Fed’s ultimate goal is to influence public borrowing from banks. During economic contractions, banks become fearful. At such times, low Fed-influenced rates cannot overcome creditors’ disinclination to lend and/or customers’ unwillingness or inability to borrow. Thus, regardless of assertions to the contrary, the Fed’s purported ‘control’ of borrowing, lending, and interest rates ultimately depends upon an accommodating market psychology and cannot be set by decree.”

Once again, flash ahead to today and the disintegration of optimism and shift toward conservation can be seen in the following data from February 2010:

• Year-over-year bank credit was (negative) – 6.8% vs. 10% in 2007
• Loan availability to small businesses plunged to the lowest level since interest rate crisis of 1980, thus drying up a major means of debt repayment.
• The number of banks tightening their lending standards has soared, while consumer credit and tax revenue is plunging.
• And, residential and commercial mortgages are plunging, as more and more home/business owners are walking away from their leases.

In Bob Prechter’s own words: Once you can assimilate the truths contained in this eBook, “you will have knowledge of the banking system that one person in 10,000 has.”

Do you want to really understand the Fed? Then keep reading this free eBook, “Understanding the Fed”, as soon as you become a free member of Club EWI.

Elliott Wave International’s Understanding the Fed eBook is now available

Dear reader,

My friends at Elliott Wave International have just released a free 34-page eBook, Understanding the Fed. It’s the free report the Federal Reserve doesn’t want you to read!

This eye-opening free report, which represents more than 10 years of research by Robert Prechter, goes beyond the Fed’s history and government mandate; it digs into the Fed’s real motivations for being the United States’ “lender of last resort.” In this 34-page report, you’ll discover how the Fed’s actions, combined with public outrage, may ultimately lead to its demise, plus much more about its secret activities and how it affects your money.

Download your free copy of EWI’s Understanding the Fed eBook, here.

Warmest regards,
Alan
———-
About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.