Did you see the news?
How could you miss it?
It sure did cheer the markets.
All the analysts said it was ‘good’ news.
The ‘talking heads’ on TV said it proved the Federal Reserve’s plan was working.
In a way, they’re right. The Fed’s plan is working. But it’s not the plan the dummies on CNBC are talking about.
The Fed has an entirely different plan. And you can bet your beans, it certainly isn’t good news. We’ll explain all below…
This Is the Fed’s Real Plan
If you’re a loyal and patient reader of the words we crank out most days, you’ll know we’ve banged on about inflation for some time now.
Specifically, we’ve banged on about our belief that the Fed’s old inflation 2% target is history.
That the Fed has a new target… except it hasn’t openly told anyone what it is… yet.
Instead, it will let the market figure it out for itself. Except, the market ain’t all that bright at times.
So when danger is hurtling right towards it (as it is now), the market just stands there (metaphorically speaking) with a happy-dumb look on its face… cheering and clapping.
It’s only when it cops it right in the chops that the market sees what has happened.
That’s the story with inflation right now. Earlier this week, the markets expected inflation to be 3.6% for April. That isn’t a good number.
But that wasn’t the number. It was 3.4%.
Still not a good number. And yet… standing there with that dumb-happy look, the market roared and soared. It loved it.
Why… oh why? Because 3.4% is better than 3.6%, don’t ya see? Hmmm.
That’s how all these things start. The reframing of what’s good and what’s bad. A year ago… two years ago… three years ago… heck, five, six, or seven years ago, 3.4% would have been terrible news.
The markets would have taken a dive. But today, the markets are so happy that it’s ‘only’ 3.4% because, well, that’s better than 3.6% or 4.6% or 5.6%.
You see now?
This is where the markets start to allow themselves to be happy with what is really a pretty crappy number… the kind of number that, at this rate, will only take 21 years to halve the value of your money.
(Editor’s note: how’d we work that out? We just use the same principle as the rule of 72. If you take 72 and divide it by an interest rate, it tells you how long it will take to double your money. You can do a similar thing with the inflation rate. Divide 72 by the inflation rate, and that tells you how long it will take for the value of today’s dollars to halve in value. Get it?)
We’ve warned about this. Make no mistake, the Fed has no intention of getting inflation down to 2%. It won’t and it can’t.
U.S. government debt is now around $34.7 trillion. It doesn’t want to repay that debt by just issuing new debt… doing it the hard way. Instead, it wants to juice its repayments by inflating the debt away.
So get ready for more of the same. This is precisely why we haven’t told you to sell all your stocks now, even though we fear a major market correction within the next couple of years.
Instead, we’ve told you to take some of your wealth out of the market and add to your cash balance, add a handful of speculations to your portfolio… and, of course… keep buying gold.
The ‘Inflate-Up’ is here. The government and the Fed will use a 3%-plus inflation rate as a way to inflate away part of their debt problem. That, in turn, will likely result in a short-term spike for stocks and other assets.
Don’t fall for the mainstream’s tale about the Fed targeting lower inflation. The real story is much different.
Cheers,
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Kris Sayce
Editor, The Daily Cut