Hard Boiled?

When I was a student there was a ridiculous game that we used to play with eggs.  In a box of 6 eggs one was raw and the rest were hard boiled.  It was effectively a game of Russian roulette as you had to choose an egg and smash it on your head.  The loser was the unlucky person that selected the raw egg as it would break spattering egg all over them.  Typical students, anything to entertain ourselves rather than study!

The reason for my story is that the Federal Reserve has used five of their 6 eggs and all were hard boiled.  So we all know that the next step is to smash a raw egg on their heads and get it all over themselves.  Of course I am referring to Janet Yellen's testimony where she said that using negative interest rates to stimulate the economy was now not off the table.  Hold on a second, she is now talking about lowering rates to negative less than two months after the momentous increase in rates of 1/4%!  So it is looking as if the rate increase will not only be reversed but will be pushed into negative territory.  The United States will then be joining the rest of the developed world with negative rates.  Talk about egg on your face!

These negative rates are going to make earning any kind of a return on savings next to impossible.  Prudent savers and retirees will be hurt as the stimulus is targeting risk and higher returns at the expense of safety.  Furthermore I would expect that they will kick start the stimulus of pouring more money into a system already awash with money.  If this is not a recipe for inflation then nothing will be and the price of gold is starting to reflect this.  After years of languishing the metal has broken to the upside and seems to be on track to recoup its losses of the previous years.

Now while I expect inflation to show up it may not be for a while.  Oil continues to fall and with the poor earnings from Wall Street will come layoffs, taking the heat off the tightish labor market. That said personal inflation rates are far higher than the Federal Reserve numbers even with the benefit of lower gasoline prices.  In fact when you look at the price of gasoline while down to around $2.50 a gallon it is still significantly higher than the sub $1.00 a gallon that it was the last time oil was down at these levels.  Inflation is here and although not reflected in their numbers is causing problems for a consumer that has not received any form of a meaningful pay increase in a decade.  This will impact consumer spending so don't expect a resurgence in the economy even if they do try to "stimulate" again.  That said it may put a floor under an already overheated market but that is another story.

While I still do not expect much of a move from the Federal Reserve in the next month or so they are certainly not going to raise rates any time soon and if the market enters a formal bear market they will once again step into the fray and "save" the market.  Unfortunately their methods of saving are not helping but are in fact going to hurt even worse in the future so my advice is to take your chances on the gold front as that, in my mind, is the only place to turn.