Just,When,You,Thought,Seen,Eve finance, share, loan Just When You Thought You'd Seen Everything
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Yesterday, the U.S. Federal Reserve announced that it would start buying long-term government bonds, a new policy aimed at reducing interest rates on mortgages.Now, I don't want to sound like a dummy, but I have been watching the financial markets all my adult life, I have an MBA in international finance from a respectable university, and I still don't get it.Isn't the Federal Reserve the government? Then, how can the government buy its own debt? Let's pretend I'm in the widget business. My company issues bonds to fund our operations. If my company buys those bonds instead of investors buying them, where does my company get the money from?Wednesday, at the Federal Open Market Committee meeting in Washington, "officials" voted to expand the Federal Reserve's balance sheet by up to $1.5 trillion. Just like that! The witch in "Bewitched" couldn't do a better job herself. But where is the money coming from? If any of my readers can explain it to me, it would be much appreciated.At this point, the Federal Reserve has either bought or lent against everything from corporate debt, to consumer debt, to mortgages, to government debt. There is no real money in a reserve somewhere that is funding all these actions. At the end of they day, more money is simply being issued (the old printing press theory) or debt is rising.As an investor, with the astounding rate at which the money supply is expanding and at the unprecedented rate at which government debt is being accumulated, the value of the U.S. currency against other world currencies and gold bullion should be a primary concern. Is it any wonder gold stocks rallied late yesterday afternoon after the Fed announced its latest maneuver? More importantly, is your portfolio protected against deflation of the U.S. dollar with hard assets such as gold-related investments? It's not too late to do just that.Michael's Personal Thoughts:Yesterday, New-York-based investment firm Paulson & Co. bought 11% of giant gold miner Anglo American for $1.28 billion. Paulson & Co. is run by John Paulson, who also runs the Credit Opportunities Fund. Paulson is well-known in the investment world. Credit Opportunities Fund was up 37% in 2007, as Paulson bet that subprime mortgages would topple. Investors should take note of this purchase by Paulson. It is yet another example of smart money moving into gold-related investments as world government deficits soar.Where the Market Stands:The advance by the stock market over the last several days has been nothing less than spectacular. But this market is not rising because the economy is getting better. I'm down in Miami for the week and the once "condo boom capital of America" is in a devastating rut. People are so desperate for money that crime is even rapidly rising. No, the market isn't rising because the economy is getting better. The market is moving higher because stocks became oversold so fast. How high she'll go, no one really knows. My prediction has been that the market will recoup all of its 2009 losses before starting back down again. The S&P 500 is now up about 15% since this rally started.What He Said:"Recipe for Catastrophe: To me, the accelerated rate at which American consumers are spending, coupled with the drastic decline in the amount of their savings, is a recipe for a financial catastrophe." Michael Lombardi, PROFIT CONFIDENTIAL, September 7, 2005. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.Profit Confidential---http://www.profitconfidential.com/LOMBARDI PUBLISHING CORPORATIONNews, Analysis, and Information Services Since 1986.One Million Customers in 141 Countries.Lombardi Publishing CorporationFinancial Publications Division350 Fifth Avenue, Suite 3304New York, NY 10118-3304---Copyright 2008; Lombardi Publishing Corporation. All rights reserved. No part of this e-newsletter may be used or reproduced in any manner or means, including print, electronic, mechanical, or by any information storage and retrieval system whatsoever, without written permission from the copyright holder. Article Tags: Federal Reserve
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