Complete and total intellectual bankruptcy of Federal Reserve was confirmed this past week. Creation and collapse of two financial bubbles in eight years would seem to suggest monetary philosophy of Federal Reserve is fatally flawed. Core rate of inflation as a tool for managing monetary policy should be declared dead, and buried in history books of foolish thinking. The entire time the Federal Reserve was driving interest rates to 1% we were told all was well because core inflation was tame. Worrying about the mortgage and housing bubble was unnecessary, cause core inflation was fine. All was clearly not fine! Bailout Ben Bernanke continues to mumble about core inflation as econometric models are used to guide the Fed's thinking. The now much poorer investors in quantitative hedge funds might explain to Bailout Ben the risks of relying on computer models.
Central banks around world have essentially eased, lowering interest rates below market equilibrium. Such action is inflationary, and will reduce the value of your money. Gold will clearly be a beneficiary of this easing. Gold has already demonstrated that it is a better investment than most quantitative hedge funds, which have been hemorrhaging investor money. Gold stocks, as shown in chart, are over sold, being ignored by investors, and should be bought. Canadian investors, especially, should look at action of CN$ after "default" by COF. Canadian dollar is likely to experience continued selling due to this event. Gold and perhaps Gold stocks at this level are the only havens from financial meltdown.
GOLD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. For a subscription go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html. Ned will be exploring the Gold Super Cycle at The Wealth Expo in NYC, 19-21 October. For information go to www.wealthexpo.net. To receive a copy of the new Agri-Food Value View, an exploration of Agri-Food Super Cycle, write firstname.lastname@example.org.