Thanks for joining me for Financial Fitness Friday – my weekly blog where I share a few words of financial wisdom to help put YOU back in the driver’s seat of YOUR financial future.
If you are following the markets, this last week has not been pretty.
In fact, Wednesday’s closing headlines from Yahoo Finance read: “Stocks rocked by soaring inflation – indexes close over 2% lower; tech stocks have the worst day in nearly 2 months.”
Also on Wednesday, the DJIA suffered its biggest one-day percentage decline since Jan. 29th.
As I write this, (Thursday evening) all 3 major U.S. stock indexes are down sharply for the week.
That reading on inflation, mentioned in the Yahoo Finance headline – for the 12-month cycle ending in April, inflation climbed to 4.2% – the highest 12-month inflation rate in about 13 years.
This has reignited fears that the Federal Reserve may need to dial back its easy-money policies earlier than expected.
So, with all the discussion on inflation, and all eyes on the Federal Reserve & their easy money policy, let us explore the impact that it is having on the economy.
The bottom line is this: when the Fed is pumping the economy full of money, and people are spending it, what else can you expect?!
Let us take a look at these recently reported inflation numbers, as shown on Fox News:
Gasoline – Up 61% in the last year
Steel – Up 77% since Jan
Lumber – Up 91% since Jan
Copper – Up 35% since Jan
Oil – Up 32% since Jan
Used Cars – Up nearly 10% since March.
I was talking with a friend the other day, whose sister and brother-in-law have been in the process of designing and building their dream home.
They have already purchased the land but have been working on the blueprints for the last few months, tweaking this, and changing that… you know how these things go.
So, after a few months of deliberating, once they were ready to move forward with building, their estimated cost had risen by over $60,000 – just for the lumber!
I cannot imagine trying to buy or build a new house right now or do a major renovation – with the inflated values of homes, and the soaring price of materials – I feel really sorry for you.
All of this activity begs the question: With all the printing that the Fed is doing, concerns are growing that they are endangering the dollar’s status as the World’s Reserve currency.
Could that happen?
The latest to wave red flag is investing magnate & billionaire Stanley Druckenmiller. “It is more likely than not that within 15 years, the US will lose Reserve currency status.”
Danielle DiMartino Booth
I recently watched an interview featuring a woman named Danielle DiMartino Booth – she is a former Fed adviser & inside and is the current Chief Strategist at Quill Intelligence.
She puts it like this: Holding interest rates down, buying trillions of dollars of bonds, even though the economy is recovering, and markets are thriving, could very well end up threatening the long-term stability of the dollar.
She suggests they are using emergency measures after the emergency has passed to effectively bankroll the spending binge in Congress.
After all, she mentioned that she has been keeping an eye on the USA Today, where they do the case count for states with Rising Cases: A couple of months ago, there were 35-40 states with rising case counts; today, it is just 6 states.
So, there is no emergency anymore, but they are still pumping out $120 Billion per month of quantitative easing as if we are in the middle of a Great Depression!
Harry Dent
I have seen Harry Dent strongly suggest that… although not outright accuse… the government of overblowing Covid as a reason to turn on the printing presses and get themselves out of the financial mess that most people do not even know about. (Repo crisis, anyone?)
As Rahm Emmanuel, former mayor of Chicago, once said: “Never waste a good crisis.”
So, the evidence is abundant that the fed should have – long ago – stepped away from these emergency types of policies.
They have far exceeded what they needed.
So, they have driven up inflation over the last 12 months by 4.2%. That is the highest in 13 years… that takes us back to… oh… 2008.
The onset of the Financial crisis!
So, there is definitely some reason to be concerned here.
Furthermore, if the Feds stick their head in the sand and continues with massive quantitative easing –there is every reason to believe that China will continue to play its long game, with the intention of unseating the US dollar as the world’s reserve currency.
China has come right out and said that they want to be the biggest economy in the world.
They are not hiding this. And in my opinion, the only currency that is currently a threat to replace the dollar as the world’s reserve currency is the Chinese Yuan.
But is that really possible?
Well, let us think back to WWI. With all the debt they incurred, the British pound sterling began to weaken appreciably, as Britain was forced to abandon the gold standard. And in the aftermath of WWII, that is when the dollar replaced the pound sterling.
But it was a 100-year process, give or take, for the British pound sterling to weaken, and for the U.S. Dollar to rise up and replace it.
I have linked an article below from Investopedia, with a little bit more information on how that transition took place.
We are already seeing this trend of a loss of confidence in the US dollar.
- Foreign holdings of US notes and bonds has decreased, falling by $127 Billion, nearly 2% over the last year – that, according to the Treasury
- IMF – recently reported that several banks around the globe are reducing their share of US Dollar reserves; in 4th Q 2020, the amount of US dollars held by central banks fell to 59% – that is the lowest level in 25 years.
So, is there any way to right the ship?
Well, Danielle DiMartino Booth says that Jay Powell may be the most rational, and independent thinker the Fed has seen since Paul Volcker was in the building. Powell made an attempt at normalizing interest rates and made an attempt at strengthening the balance sheet.
And what happened?
The stock market and corporate debt market started to collapse.
Remember in 2018 – as the Fed tried to normalize interest rates? They made 3 upticks of a quarter-point each… and by December, we saw a 20% drop in the market. Remember the Christmas crash of 2018?
What a wonderful Christmas present!
But that is how vulnerable the market is – that just a few quarter-point increases led to a steep drop.
So, Powell was rebuked, and in 2019, the Fed spent the year undoing the interest rate hikes of the previous year.
DiMartino Booth points out that this is the problem with the Fed policy going forward – inflating the bubbles of these assets, including risky assets, and its inflation of prices more and more every day.
Look at the housing market, for example, and the number of people who cannot find affordable housing.
The Fed, in theory, is supposed to make monetary policy in the public interest, at least that is what it says on their website.
But the Fed tells us everything is okay, not to worry, the inflation is just transitory, and everything is going to be alright.
But is it possible that they say that to pacify sentiment, pacify the public, pacify the holders of dollars? Isn’t that a possible motivation – to keep everybody calm, and keep people out of the crisis mindset?
Peter Schiff
I heard Peter Schiff say in an interview that a large part of the Fed’s job is public relations. It is to create a spin, to create a false sense of confidence.
He referenced an interview that was done with Ben Bernanke after his time as chairman was over. The interviewer played clips from Bernanke talking in 2005 and 2006 saying everything is great, there is nothing to worry about, there is no bubble in the housing market, the subprime issue is contained, we are not going to have a recession…
So, he plays Bernanke these clips and basically asks, “How does it feel to have been so wrong?”
Instead of Bernanke saying, “Yeah, that was kind of dumb, I was wrong, we missed the boat, what was I thinking?”
His answer was along the lines of: well, I could not actually speak forthrightly because I was part of the administration…
So, he was basically saying that he could not say what he truly thought, because had to toe the party line and say what the administration wanted him to say.
But here is the thing: the Fed is supposed to be independent!
So, from that example, we might surmise that anytime we hear the Fed Chair speak, that he is not saying what he actually thinks, but what the party line is, and what the administration wants to be said.
Peter Schiff said that at this point, the Fed Chairman, and their reports – it is just propaganda for the administration. And to them, confidence is very important. They do not want to do anything to reduce confidence.
They want to instill confidence, especially if they think confidence is waning in public perception.
They are never going to say, “Gee, we think there’s going to be inflation or a recession, or that the dollar is going to crash…” because if they say that, they will do the very thing they want to avoid: decrease confidence, spook investors, and cause the bad things to happen even sooner.
Any warning of a crash could cause one!
So, they do not want to accelerate the onset of the crisis that they see, even when they see it – they want to postpone that as long as possible.
And one way to postpone it is to simply act like it is not even a threat.
So, what can we do to combat inflation, to protect our hard-earned dollars from inflation, from the devaluing of the currency, and from a potential stock market drop like Harry Dent is predicting?
How can you protect your financial plan and your portfolio in the current climate?
Ben Bernanke
Let us go back to Ben Bernanke, and I find this to be very interesting.
So, Ben Bernanke has a net worth of over $3 Million dollars. During his time as Fed Reserve Chairman, he was the most influential money person on earth, so his opinion and example have to be worth a lot.
And do you know where he keeps the bulk of his money?
Annuities. Yes, his 2 largest personal investments in his portfolio are annuities – 1 fixed, 1 variable. I have linked an article below.
Why would he own tax-deferred vehicles like annuities? Does he know something that the typical financial advisor or banker does not want you to know?
Don’t they tell you to pump every dollar that you have into the stock market because the market always goes up?
Well, if you are old enough to remember 2008, you know that is not true.
But if you consider his mindset, even the rich do not want to lose their hard-earned principal – they put it in a position where it is safe and secure but also has some great potential upside.
Now how about Danielle DiMartino Booth, who I quoted earlier?
Well, DiMartino Booth says there is a lot to be said for holding precious metals. She makes the point that they have inherent value. “They’re not called everyday metals; they’re called precious metals.” She thinks it will be even more important to have a larger hedge with precious metals.
When the interviewer asked her to clarify her position: “So that’s your recommendation – that the best way to protect your portfolio is to overweight precious metals?”
DiMartino Booth answered, “I think being BOLD in precious metals right now – I am personally, so I’d be a hypocrite if I said otherwise.”
Ray Dalio
Even Ray Dalio, legendary hedge fund manager, has recommended holding 7.5% of one’s portfolio in gold, so I definitely see the value in implementing precious metals into one’s portfolio as a hedge.
So, as we wrap up today’s discussion, the point of all of this is to provide information about some of the challenges that we face, and not to scare you, but inform you… and hopefully inspire you to take some positive action in creating some buffer assets in your portfolio if you have not.
Again, I am not necessarily recommending an annuity or precious metals for you. But I would encourage you to have a conversation with a trusted advisor about your concerns and your goals and work together to take the positive steps in your financial life.
If you do not have a person like that, I would love to be that for you. Just send me a message on social or email me at Ronald.sneller@snellerfinancial.com
Thanks for taking the time to read today’s blog, I hope you found it informative and valuable.
Enjoy your weekend!
Sincerely,
Ron
Disclaimer: While I am a personal Financial Consultant and Investment Adviser, what I discuss on these blogs is not to be taken as or construed as personal financial advice, or investment advice.
Rather, it is about providing you with information & resources to empower you, the reader, with the knowledge that you need to make informed decisions that feel right to YOU.
And if you would like my assistance in guiding you down that path, that is where I can learn about your specific situation and work with you to give you personalized advice & guidance.
If you would like to contact me regarding my services, you can email me at Ronald.sneller@snellerfinancial.com
Articles:
Title: How the U.S. Dollar Became the World’s Reserve Currency
Title: The Ben Bernanke and Janet Yellen Investment Portfolios
Website Link: https://seekingalpha.com/article/1734092-the-ben-bernanke-and-janet-yellen-investment-portfolios
Follow Me On Social Media:
www.facebook.com/snellerfinancial
https://www.linkedin.com/in/ronaldsneller/
Subscribe to my YouTube Channel:
https://www.youtube.com/channel/UC-aYsfyS_Hc-PCWkaqAFD4Q
Website:
Comments are closed