The Vise is Tightening on the Fed

The Fed is in between a rock and hard place — the space is getting tighter every day.


They are helpless and just cheering on Congress at this point.


Check this out … 


The latest numbers are in and the Fed is hiding the fact that they are doing more quantitative easing (QE) than they are letting us know about.


Their “official” QE purchase program is $120 billion per month. And yet…

The Fed has already purchased an additional $68 billion in bonds this month.


Can you imagine where bond yields would be without that?


I shudder to think!


We Are at A Critical Juncture for Stocks, Bonds and Gold… 


Oil is still the safest place to be since supply and demand continue to make it the economy’s most essential commodity.


We have reached a critical point in this stimulus cycle because Bond rates are rising in anticipation of inflation



However, Fed Chair Jerome “J-Pow” Powell is out there denying inflation has risen, even though actual prices consumers pay for essential goods are way above the Fed’s “official” inflation rate …


I hope that J-Pow understands the seriousness of his denial that real prices are rising  …

But based on public statements by him and other officials (more on those in a minute), I have to question if they do.

And historically this is when the Fed makes a critical mistake … 

In other words, by denying real prices are rising, Americans may not be prepared for the inevitable spike in inflation … 

This could cause serious damage to their savings since inflation acts as a tax on cash holdings and all financial investments.

The denial is also putting pressure on gold, which is normally an ideal hedge.

Gold’s price has been pushed down to critical support and if the selling continues it could suffer a bit of a meltdown. See the chart below:


J-Pow & JANYELL

Jerome Powell and Janet Yellen are, in fact, making the situation much worse …


If you listened carefully to J-Pow this week, he was mimicking JANYELL’s balancing act …


This was from Reuters on Thursday (emphasis added):


The Fed has said it will not raise interest rates until inflation has exceeded 2% and “we believe we can do it, we believe we will do it. It may take more than three years,” Powell said. The current inflation rate by the Fed’s preferred measure, meaning made up by them,  is about 1.3%.


Check out what a respected alternative data reporting firm “John Williams’ Shadow Government Statistics" describes the Fed’s inflation indicator:


Methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living. 

Let’s look at the truth in numbers… Below is a chart showing the increase in prices for essential economic goods:


Gasoline +72%, Lumber +52%, Copper +34%, a basket of overall economic commodities +195%….


J-Pow and Janyell’s message is this… we need to go big with stimulus — and don’t worry, we have the tools to handle inflation.


First of all, wrong.


And bonds are obviously not buying their BS. Bonds never do, because bond people know how the Fed operates …


This is the Fed’s model … create one problem, which causes an even bigger problem … then worry about the bigger problem …


Michael Burry, author of the Big Short who called and profited big when the housing bubble burst, tweeted earlier this week, “Hyperinflation, which occurred in Germany in the 1920’s, will happen in the US.”


Let’s take a look at Hyperinflation in Germany at the end of WWI


Please notice the gold trend line. This is where the US is today.


The average consumer is watching CNBC, believing the Fed is in control …


The next stimulus package will make the average American feel more confident… and once the economy opens, people will spend …


Bingo, money velocity — meaning spending activity will rise and inflation will spike.


Once inflation spikes the Fed will not have an answer, the real economy will still be too fragile to raise rates and the government’s only recourse will be more spending …


That is what Michael Burry and many bright people who don’t watch CNBC are worried about …


You should be too.


Bring It Home

Income Hunters, it’s my job to give you the probabilities of what may happen …


I can only tell you what I know about the Fed, history and my honest opinion …


My portfolio is hanging in right now because I have done a reasonable job of protecting it by selling calls and using call spreads to withstand the noise …


However, I believe we are heading towards an inflationary period that could resemble the 70’s … 


So, it is critical to save plenty of dry powder and add to positions on pull backs so you can kill it when the inflation genie comes out of the bottle.


In the meantime trade aggressively and shift into undervalued names and sell overvalued names to maximize returns…


I had a great pick-up in ConEd, which was one of the few stocks that rose yesterday…


Here is my current portfolio…



As always…


Live and Trade with Passion My Friends,


Griff

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