Not sure how many of you noticed, but today marks the day that the governor of the Federal Reserve (Ben Bernanke) changed his outlook on the economy from ‘concerned’ to ‘God help us’. For those who haven’t noticed, let me give you a brief update.
We now stand in a time where it has become apparent that our attempts to mix capitalism and socialism have failed. Much like the fall of communism, the problem with socialistic policies is that policy makers take way too much advantage of the system. On the liberal side, we have completly bankrupt our coffers and gone into serious debt as a nation in an attemt to ’feed and cloth everyone’ to put it simply. On the conservative side, pure greed led to expansive use of financial leverage (borrowing money) in order to boost profits to astronomical levels at the expense of the middle class. Indeed, Alan Greenspans policy of negative real interest rates from 2002 onward created rampant inflation which was mainly felt by the middle class. As we struggled earning less and paying more for everything from gas to college, the income gap from top to middle in REAL wages became ever so wider.
In a speech before Congress today, Ben Bernanke admitted what many of us have known was coming for a loong time. Put simply, we are in a recession, we also have inflation, this is the worst possible combination for an economy, we may go into a depression. So the question we need to ask ourselves, as time is our only ally right now, how do we profit from this. Where are the money making opportunities that will protect our wealth from evaporating? I’m thinking gold, I know its already run up a mile, but I still think it makes sense. What about you, what do you think? Oil? healthcare? WalMart? Other Countries?
January 17th, 2008 at 12:23 pm
Update: Bernanke is still speaking to Congress, the market has dropped close to 200 points on the DOW since he began. Also, the Philly Fed Manufacturing index was released at 10am. The number came in so poor that it prompted these comments:
PHILLY FED: “It’s just awful. The Northeast and Mid-Atlantic are slowing precipitiously. Last time we had this Philly Fed number was the last recession. The notion of a recession continues to gain traction.
On today’s Philly Fed survey, it was awful. It just confirms what we all think that the U.S. economy is rapidly spiralling toward recession.”
–As for me, I am confident in only one thing, the pieces of paper that we hold that are supposed to be formal notes of exchange for our individual production, yet are only backed by the ‘full faith and credit’ of the US gov’t, are quickly becoming worthless. We NEED to get rid of our dollars and buy SOMETHING. Like I said, I like gold. Gold, silver, water, those are my big three.
January 17th, 2008 at 12:38 pm
Although in principal I agree with you that gold is the potential safe haven to store your money during a recession; however I think you are a little late on gold. In that last few years gold has run up huge and is trading at ridicules multiples, I do think there is more room to grow but the upside is very limited. My top choice would be to take advantage of the current real-estate market and low interest rate environment and invest into homes. I’m not saying buy property and hope to flip it within a 1 year period but I am saying hold that property through the recession and sell at the top of the pull back. I believe that if the government is going to give out economic incentives you will benefit as a new home buyer. Another interesting play would be to short all the stocks that have run up to much, specifically all the alternative energy and fertilizer stocks. They have reached their peak and are probably the next bubble to burst. Just my opinion.
January 17th, 2008 at 3:31 pm
Just to make you guys feel better. Here is an ascrib from bloomberg. …”Bernanke said that inflation, both including and excluding food and energy costs, “should moderate this year and next, so long as the public’s confidence in the Federal Reserve’s commitment to price stability is unshaken.” He cited inflation expectations that appear “well anchored” and futures suggesting food and energy price increases will slow.”
Bernanke is trying to cover him self but with rate cuts. As we know from economics we will not know that we are in a recession well after it happens. All the data is in the past. I hope he knows what he is doing. If he over “corrects” his speculation we will be worse off then we started. Just give it time no need to be all nervous. Maybe he should convince the Gov. to have a tax cut instead of cutting the rate. Greenspan did in 2001. There is more then one way to stimulate the economy.
January 17th, 2008 at 3:59 pm
Excellent points, let me expand. I too like the idea of a fiscal stimulus package, especially if it were coupled with an INCREASE in interest rates, but we know that won’t happen. Bernankes comments are and will be as expected, it is commonly accepted that the Fed must never admit that there is too much inflation, else that will spur more inflation. Put simply, if I own a business, and the Fed tells me my costs are rising I will react by raising my prices, causing more inflation.
I wish I could be more upbeat about this, but as the DOW is now down over 300 points, and is close to the 12,000 level, I have to say we are already in a recession. With this being an election year, I doubt that any tax cuts will be done in time to make an impact, and I personally think we are on the verge of economic armageddon. Just becasue it is 2008 doesn’t mean we can’t see events like those in the 1930’s or 1970’s.
January 17th, 2008 at 4:35 pm
I dont think we will see any thing close to 1930 and 1970. A. we have FDIC to protect my money in the bank so i will feel safe leaving it there and there will be no run on the banks. Also B. we have the Alaskan pipe line which we did not have in the 70’s if price of oil really gets bad and we run of reserves they will have to turn that puppy on and say FU to the middle east.
January 17th, 2008 at 8:44 pm
All he needed to do was convince everyone that everything is going to be ok. But he basically said we are screwed and that’s just making things worse.