The Fed wants investors to be as unconcerned as the central bank is about
inflation. Even though year over year consumer price inflation is above its
target, the Fed chose in its latest press conference to claim the 2.1 percent
YOY increase in prices paid merely represented "noisy" readings in the inflation
gauge. However, the truth is that rising prices are a direct result of years'
worth of zero percent interest rates and $3.5 trillion in money printing provided
courtesy of both Banana Ben Bernanke and the Counterfeiting Queen, Janet Yellen.
It makes no difference to Ms. Yellen that price increases in the major inflation
categories are rising above the Fed's target. For example: Food at Home is
up 2.5 percent; Energy went up 3.3 percent; Shelter rising at 2.9 percent;
Medical Care Services up 3.0 percent and Transportation Services climbing 3.1
percent. But somehow the widely dispersed increases in year over year inflation,
which are already far above the Fed's target, are being summarily dismissed
as "noise" by our central bank. In the spirit of today's central bankers, inflation
is seen not only as a dear friend; but one that they never seem able to recognize
face to face.
Ms. Yellen also stated in her press conference that equity prices seem to
fairly valued from the Fed's viewpoint. Perhaps she is also unaware that the
ratio of total market capitalization to GDP is currently 122 percent. That
figure is the second highest in recorded history -- 1999 being the only exception
-- and is 70 percentage points higher than the average from the time Nixon
broke the gold window in 1971, all the way through 1990! In fact, this key
ratio is a full 10 percentage points higher than it was at the previous peak
before the start of the Great Recession in 2007. As a reminder; stock prices
proceeded to lose more than half their value from the summer of 2007 thru March
of 2009.
The bottom line here is that central banks around the world have fallen into
a passionate love affair with inflation and asset bubbles. That is because
these fiat-currency apologist believe inflation is commensurate with economic
growth; and that the solvency of sovereign debt can only be achieved through
massive money printing and negative real interest rates from here to eternity.
But the joke will be on these market manipulators and legalized counterfeiters
in just a very short amount of time. Doubling down on the failed strategies
of debt, inflation, currency destruction, regulations, taxes and artificially-low
interest rates will soon explode in their faces once again -- but only to a
much great extent this time around.
The most humorous part of all this is Wall St. and Washington have duped most
investors into believing the fairy tale that our central bank can end a multi-trillion
dollar bond buying program and six years of ZIRP without experiencing any ill
effects. And, at the same time they are telling us that economic growth will
be accelerating, while the cost of money and the rate of inflation do not increase.
I can assure you that there is virtually a zero percent chance of that happening.
Therefore, I'm unfortunately completely convinced our government's fantasy
will end in a catastrophe for markets and the economy.
