The New Big Short... U.S. dollar out, oil in... The Fed/Goldman scam... Denial at the Fed... Opposite Day at the European Central Bank... Sjug's history lesson... Spain's Chinese connection...
The biggest bond-fund manager in the world has shorted U.S. Treasurys in the world's biggest mutual fund (PIMCO being the manager, PIMCO Total Return being the fund).
One of the world's most successful currency speculators (George Soros) says the U.S. dollar is no longer the world's reserve currency. He says central banks have diversified away from the dollar, and oil and other commodities have become more important as investments and stores of value.
At the same time veteran investors say the dollar is in trouble and becoming irrelevant…. everywhere you look, stuff costs more.
Because the Fed won't stop printing dollars, we're paying more for food and fuel. It used to cost me less than $50 to fill up my car. A few days ago, it cost me $63 – at Costco. A big trip to the grocery store used to cost us $150. Now, we always ring up $200 or more… And we're buying less food because two of our three kids have moved out.
Then, there's Goldman Sachs… the for-profit arm of the U.S. government… a firm that mysteriously ends up on the right side of every trade. Goldman isn't sounding the inflation alarm. It's taking profits on oil and copper.
It's OK if Goldman is wrong about oil and copper. Maybe it can make up any losses by ripping the Federal Reserve's face off every day in the Treasury market. Goldman and 19 other "primary dealers" sell the Treasury securities the Federal Reserve is buying. At the Grant's Interest Rate Observer conference a couple weeks ago in New York, Bank of America's James Bianco told us how this works…
The goal of quantitative easing is to raise the price of U.S. Treasurys and lower their yields. But suppose Treasury prices rise for some other reason – say, the fears created by the Japanese earthquake and tsunami. Then, the Fed stops buying until the price settles back down. Once the price drops back, the Fed starts buying again so it can bid up the market to benefit dealers like Goldman Sachs and JPMorgan Chase. Is it any surprise the execution of QE2 puts more money in Wall Street's pocket and takes more out of yours and mine?
What's really interesting is even though the Fed conspires with Wall Street to manipulate the Treasury market higher, interest rates on 10-year Treasurys have risen, not fallen, from less than 2.5% last November when QE2 began to around 3.5% today. Somebody must really be selling a lot of Treasurys...
Oh yeah, the Treasury is selling a lot of Treasurys. It's selling record amounts of new debt to finance Komrade Obama's third-straight $1 trillion-plus budget deficit.
Ever in denial, not only does the Federal Reserve deny the existence of inflation, it's furiously stoking the flames... At a speech at the Economic Club of New York on Monday, Fed Vice Chairwoman Janet Yellen said the nation's monetary policy "continues to be appropriate." She said the recent increase in commodity prices are "unlikely to have persistent effects on consumer inflation or to derail the economic recovery" and are "not likely to warrant any substantial shift in the stance of monetary policy."
The key, Yellen said, is households and businesses don't expect long-term inflation. We're not sure which households and businesses she's talking about... The ones we know are paying record prices for commodities. And we'd argue the key to the inflation argument is the persistently rising prices of gold and silver.
Federal Reserve Bank of New York President William Dudley echoed Yellen's sentiments in Tokyo earlier today... "We think it's important not to overreact to a rise in headline inflation because the increase in commodity prices is probably going to be temporary rather than persistent," Dudley said.
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Note the stocks on today's new 52-week highs list. These are the companies you want to own during inflation... Companies with supreme pricing power that sell addictive products, like chocolate and cigarettes.
New 52-week highs (as of 4/11/11): Hershey (HSY), Altria (MO), Phillip Morris International (PM).
Have you noticed that we, like the rest of the world, are constantly writing and worrying and obsessing about the dollar, QE2, and other macro-oriented topics? We're not necessarily wrong to do that, but it makes me wonder... Are we missing something? Tell us what it might be at feedback@stansberryresearch.com.
"I have to laugh at the subscriber who believes you are all about the money, and thinks he made you a good offer. 'Give it to me for free, and if it is good and works making me money, THEN I'll subscribe. You responded with your standard money-back guarantee.
"What makes me laugh is the mentality that says 'give it to me free so I can try it out – it costs you nothing, so give me a break.' What such people fail to realize is how the world works. You folks are in the information and advice business – good info and good advice. Some might say outstanding. But that is all you have to sell. There is no benefit to you if you 'give it to him on loan.'
"I learned a long time ago that I seldom put to use that which is free. Worse still, if I do put it to use, it is in a haphazard and ineffective way. When I pay big bucks for something, you can bet your booty I'll put it to work and take good care of it.
"His 'offer' to you bespeaks of an investing adolescent with a pretty steep learning curve still ahead of him. Keep up the good work. I am making money with your advice even though I only subscribe to a single resource. It happens to meet my needs well for now. Too much info tends to overwhelm this feeble brain." – Paid-up subscriber Rob Wilson
Ferris comment: Your note reminds me of Harry Browne's timeless essay, "A Gift For My Daughter." The point of Browne's brief essay is crystal clear, repeated several times throughout: No one owes you anything. You can only get what you want from other people by entering their world. No one owes you love, respect, or anything else.
And if no one owes you anything, maybe if you offer them something valuable at every turn, they'll want to interact with you out of their own self-interest. You find that attitude in the character of Hank Rearden in Ayn Rand's novel, Atlas Shrugged. Rearden is the man who always pays his own way. He knows nothing is free in the world, and he always offers value for value.
Let's face it, folks… The quest for investment success is a battle. If you can save a large sum of money, you're winning. If you always pay your own way, you're winning. And if you know no one owes you anything, you're winning the battle against the normal, lazy, status quo views.
There's no advanced class in life. It's all fundamentals from beginning to end... Save money. Be conservative. Avoid big risks. Don't bet big unless you've done all your homework and then some.
"I #'n hate bad language, I live in a bubble near Atlantis and am would like you to screen me from anything unpleasant while I am waiting for the age of aquarius." – Anonymous
"I couldn't help but respond to Porter's comments here as I think the logic is totally flawed. Propriety and dignity are two good reasons not to publish profanity. With how much regard do you hold yourself and your publications? Let the people writing know that debasing your publication and themselves won't be tolerated by bleeping the text or not publishing it. I understand that people get angry from time to time, write something stupid, and want everyone to understand how angry they were through the use of profanity. Perhaps it takes a stronger and more creative mind to interpret the emotions of a letter that doesn't curse. God forbid.
"Furthermore, how far should you let this slide? Say your buddy needs a few bucks, so give him a few for a return favor sometime that may never happen. When he tries to borrow again, you might refuse, but perhaps he'll get it from the next guy. Before you know it, half the neighborhood is lending money and nobody is getting any return; but the bum sure seems satisfied. Sounds eerily familiar to something that's been happening for 40 years or so. My point? Nip it in the bud. You of all people should know better." – Paid-up subscriber Matt Mazza
Ferris comment: But Matt, there's no bud to nip. There's zero danger of S&A's editorial being overrun by profanity because we don't use it ourselves. We only publish the occasional letter from an angry subscriber that might contain an expletive or two.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
April 12, 2011