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Federal Reserve Can't Hide Drama
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We usually think of the Fed as operating quietly behind the scenes to help keep the credit-based economy lubricated. Not this time, though. The central bank has had to come out in the open, mainly because the troubles it has been trying so frantically to paper over are as visible as the plague of weathered “For Sale” signs on our neighbor’s lawns. Given the extent of our credit woes, and the rate at which they have begun to metastasize, the Fed is no more able to work behind-the-scenes than a surgeon is able to treat systemic cancer non-invasively.
Now, the last thing in the world the Fed wants to do while it goes about its business is stir up a sense of drama. And yet, that is exactly what it has been doing, unavoidably so. A drum roll precedes Bernanke’s every move these days simply because so many millions of us, your editor included, are unable to imagine how the central bank is going to jump-start the weakest real estate market since the 1930s; or for that matter, how the bankers will “prevent” a bear market that is both inevitable and too scary to contemplate. We sense in our bones, however, that the so-far half-point cut in the discount rate is not likely to trigger a buying stampede, nor even the sort of mortgage re-fi binge that might be expected to prop up a consumer economy that is poised to topple into a potentially bottomless recession.
Paulson’s Clumsiness
The Fed is walking a tight-rope with no safety net, and we all know it. And that’s why we cringe whenever one of our would-be rescuers wobbles. On CNBC recently, Treasury Secretary Paulson was up on the high-wire trying to “manage expectations” in his clumsy way. The strain was showing, and his words fell to earth when he described the U.S. economy as “very, very healthy.” A single “very” would have been overkill, but the second was enough to trigger déjà vu even in those of us who weren’t around in 1929 to hear similarly disingenuous pronouncements. We shall hear many more such false reassurances as the U.S. economy slips into a deflation whose depth will have no historical precedent. The messenger will only be doing his job, telling us no more than he thinks we can stomach. For now, it would appear, even a glimpse of the truth evidently has been deemed too risky to allow.
Concerning Bullion
We note in passing that the precious metals issues that we monitor so closely in the Rick’s Picks chat room have perked up on mounting evidence that Helicopter Ben is ready to live up to his nickname. However, neither bullion nor mining shares have gone crazy in response to the apparently growing likelihood that the Fed, and other central banks, are about to pull out all the stops. We think any such effort at preventing a debt deflation is doomed to fail, and that could explain why bullion’s response so far has been relatively tepid. Even so, we expect the precious metals complex to perform well relative to all other classes of investment assets. That doesn’t mean we see Gold going to $2,000 or higher, as some of our colleagues evidently do. But we do think that, come hell or high water, precious metals are unlikely to disappoint investors over the long run.
Rick Ackerman
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company.
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All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com
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