With this week’s carnage on Wall Street, it’s no surprise that investors are feeling insecure.
But while everyone is fretting, I remain confident and hopeful. That’s because I know that the Federal Reserve calls the shots, and we’re merely players in its game.
And just like any other game, you have to know the rules to successfully invest in the markets.
So even if you don’t share my inner calm, I’m going to tell you why you should…
Knowing the Rules
First of all, you have to understand that the Federal Reserve works to protect government first and then the governing elite in tandem.
Basically, don’t expect the rich to do without their Ferraris or Maseratis. The Federal Reserve stands ready to print dollars until the moneyed are happy.
Just last week, John Williams, the San Francisco Fed President, was preaching low-interest rates to Reuters: “If we don’t see any improvement in wages that would be a sign that we’ll still have a lot of slack in the economy and we’re not getting any inflationary pressure to move inflation back to 2%.”
If this does turn out to be the case, then any increase in interest rates will be postponed. What’s more, the Fed may even consider revving up its purchase of assets through another round of quantitative easing (QE), according to Williams.
He said, “If we really get a sustained, disinflationary forecast… then, I think moving back to additional asset purchases in a situation like that should be something we should seriously consider.”
Even with $4.4 trillion of assets already under its bloated belt, this devourer of the private economy still can’t get enough.
Heck, maybe these socialists won’t be happy until they own every piece of paper in the country. After all, it’s obvious that their real motive is to keep borrowing costs low for governments that are gobbling up the world’s wealth.
The Ultimate Monopoly
So after accepting that the Fed is the author of the game, you have to come to grips with the simple fact that America is no longer a free market economy. Instead, it’s what economists would call a “mixed economy.”
Some vestiges of once-free markets still work resoundingly well, but government has been socializing sector by sector. First, the progressives captured Washington, D.C. with the election of Woodrow Wilson… then the income tax was established… and finally there was the creation of the ultimate monopoly: the Federal Reserve.
Today, the most successful of businesses seek to be vassals of government, rather than the masters of the universe seen in the 19th Century.
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Don’t believe me? Just look around. Google (GOOGL) catalogues data for the U.S. government and monetizes the data by selling search-related advertising. Boeing (BA) builds planes and rockets for Uncle Sam first and the world’s airlines second.
Even financial firms and banks reap billions selling and trading government bonds, a market that wouldn’t exist were it not for government overspending.
But what does this have to do with the everyday investor? It’s simply proof that, because of the way government works today, stocks are the only place to be.
In fact, if it weren’t for the government, many companies wouldn’t even be in business…
Some of the best customers of hotel chains and airlines are the hordes of government workers traveling on “business.” And who do you think fills all those business class seats to Europe? It isn’t private enterprises or pensioners, that’s for sure.
Make Your Final Move
Is my portfolio nominally down right now? Yes, but over the long run, stocks have paid me very nicely to be a long-term investor.
If you’re sitting in the bond market today (with rates being crushed to barely a trickle), you’re just slowly losing money. Your returns in real dollars are an illusion.
Basically, this is the final inning of a rigged game. Massive wealth is being transferred from the productive to the nonproductive, and people who saved and scrimped in the 1950s and ‘60s are being drained.
The only thing we can do is avoid falling prey to the Fed’s plan.
Look for firms with good margins, real profits, and dividends. These firms and real assets – such as real estate, timberland, farmland, and natural resources – are the place to be. When the washout comes, even though few places will be a haven, these will be the best.
Your eyes on the Hill,