Hey There Income Hunters,
There was a great exchange over the weekend when Janet Yellen was asked to respond to recent criticism from former Clinton Treasury Secretary Larry Summers.
Summers wrote in a Washington Post op-ed last week that President Biden’s stimulus plan, while admirably ambitious, is too expensive and could risk runaway inflation.
Republican lawmakers (along with some Democrats), not to mention other economists, have duly latched onto that.
But Yellen was not impressed.
“We face a huge economic challenge here and tremendous suffering in the country. We have got to address that,” Yellen said in response. “That’s the biggest risk.”
I think the most outrageous thing Yellen said, however, was that the Fed had the tools to handle any potential inflationary threat.
As any economic historian knows, you cannot turn inflation on and off …
Just look at how hard it was to control in the 1970s.
That statement by Yellen is so typical of an ex-Fed governor.
There is precedent for Fed chairs ignoring the facts when we were heading towards a crisis …
Ben Bernanke, who headed the Fed from 2006-2014, did the same thing during the housing crisis. Check this out from July 2005 …
INTERVIEWER: Ben, there’s been a lot of talk about a housing bubble, particularly, you know from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?
BERNANKE: Well, unquestionably, housing prices are up quite a bit; I think it’s important to note that fundamentals are also very strong. We’ve got a growing economy, jobs, incomes. We’ve got very low mortgage rates. We’ve got demographics supporting housing growth. We’ve got restricted supply in some places. So, it’s certainly understandable that prices would go up some. I don’t know whether prices are exactly where they should be, but I think it’s fair to say that much of what’s happened is supported by the strength of the economy.
All this sort of avoidance is doing is keeping average Americans from understanding the truth and being able to make the necessary changes to protect themselves …
Janet Yellen is so afraid the Fed won’t get inflation that the mistake she will make is losing total control of it.
And guess what …
It’s already here
These are two leading inflation indicators …
The 5yr breakeven is the difference between the 5yr Treasury and the 5yr Treasury Inflation Protection (TIP) security rate
The 5y5y forward inflation expectation rate is a measure of expected inflation (on average) over the five-year period that begins five years from today.
So, this $1.9 trillion is a done deal and you know they will put through an infrastructure spending bill before the summer.
That means there is only one thing for you to do.
Just stay focused on the reflation trade. (That means precious metals and miners. I like AG and PAAS for silver; SAND and AU for gold. Also energy stocks, including XOM and BP, and infrastructure plays KMI, EPD and TOT.)
The Fed’s ineptitude is our greatest asset.
Bring It Home
OK, I had to vent today after reading that exchange. I have been watching this go on way too long!
Also, congrats to my adopted hometown team, the Tampa Bay Buccaneers, for their Super Bowl win. I expect they’ll see some inflation in ticket sales next season.
Have a great week and as always …
Live and Trade With Passion My Friends,