Thursday, January 26, 2012

Sorry Grandpa.....

If you have relatives living on a fixed income consider how yesterday's Fed statement impacts them. The chairman of the private bank that refuses to allow markets to determine the price of capital has spoken. He has eloquently stated that 0% rates properly compensate money owners for the inflation present in the system. What system is he talking about?

Not Impacted By Inflation!

What we know from living in the real world is that 0% is not the proper price for risk capital. Think of the risks associated with investing in the current markets. Consider the perils that your investment dollar faces in turbulent and confused capital markets. What about the price of a Thanksgiving meal which reportedly increased 13% from 2010 to 2011? Maybe the chairman assumes families will substitute turkey for a cheaper meat in order to mitigate the rise in prices?

This leads to the true reality of the conditions we now face. Your standard of living is dropping and you don't even notice. You will not notice until it finally hits you like a ton of bricks. Humans are remarkably skilled at adapting to circumstances. Only when an extreme is reached are they likely to notice what has happened.

In 1971, a working father could support a family of four as the sole provider. Today, he works the same job and his income combined with his partner's income barely funds a mediocre existence. The average American has no savings and is financially illiterate.

For those who care to dust off their brains for a final attempt at rational thought, we must seek investments that offer shelter from these trends. Gold remains the most simple and pure hedge against the natural instinct of politicians. For those who just can't bring themselves to purchase the "worthless and barbaric relic of a bygone era", other hard assets should be considered. Whatever you settle on please be sure that your capital is deployed in an asset class that responds inversely to a devalued dollar caused by unstoppable money creation.
If you think this chart looks good, you should see how the un-hedged gold mining companies responded to the chairman's eloquent interpretation of reality.