Thursday, March 19, 2009


I've seen some stunning moves by the federal reserve over the years but none more shocking than yesterday afternoon's actions. Since interest rates are already targeted at the 0 to 0.25% range everybody expected no change there. But few expected that the fed would announce the creation of another $1,200,000,000,000.00 out of thin air. This $1.2Trillion would go to buy up treasuries, bad mortgages, and assorted odds and ends. This fed move is calculated to drive people into risk while dropping mortgage rates to 4% or so. It's an announcement that deflation is dead so hanging onto your money waiting for prices to drop is no longer a smart option. Of course, with interest rates collapsing you can't get a decent return on "safe" options like certificates of deposit. So, the fed gave some fresh wind to the equities market which has rallied close to 20% over the recnt lows already-- a rally that looked tired.

Another immediate reaction was a drop in the value of the dollar by a greater amount than in any trading day in about 24 years. How else to play it? Well, inflation is coming so you sell the dollar and buy commodities like gold and oil. We've been through climax runs (AKA: bubbles) in stocks, houses, and oil in just the past decade. The next climax run? I'd say GOLD.