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The Trillion Dollar Gimmick

Written By Brian Hicks

Posted June 19, 2011

Welcome to the Wealth Daily Weekend Edition — our insights from the week in investing and links to our most-read Wealth Daily and sister publication articles.

One of the greatest myths throughout this whole debacle is the notion that somehow, the Federal Reserve can save us.


Could this delusion be true, life would indeed be a golden dream.

But as my uncle patiently explained to me back in the 70s, you can’t print your way to prosperity…

“It’s a sucker’s game,” he said, “a con of the highest order. Otherwise, we would just print up million dollar bills and hand them out to anyone who wants one.”

“But that’s not a solution,” he chuckled. “That’s a gimmick.”

That was over thirty years ago. Since then, nothing has really changed. We foster those same vain hopes at present.

So instead of actually recognizing the depths of our plight, we are content to chase these dreams with the faint idea that somehow, some way, our problems will all just go away. This leads to our trusting the very people who got us in this jam in the first place to save us — with a bigger dose of more of the same.

The funny thing is we expect different results. It is madness.

We continue to let the Fed kick the can down the road… where she stops, nobody knows — not even the biggest central banker of them all, Ben Bernanke.

Bernanke practically ran up the white flag last week in the face of a slowing economy, admitting “monetary policy cannot be a panacea.”

When I heard that, I practically fell out of my chair — not because it wasn’t true; but because of who had said it. To me, it was akin to the Pope suddenly exclaiming there is no heaven after all.

I suspect Bernanke is finally beginning to realize our problems are not monetary. He may actually be figuring out they are structural, which is why two solid years of massive intervention by the Fed hasn’t managed to fix a single thing.

In retrospect, it was nothing more than multi-trillion dollar bet that has since come up snake eyes. By every measure, things are the same — or worse: unemployment is still high, home prices are still falling, and GDP is stuck in the 2% range.

The Fed, in other words, completely failed.

What is up over that same time frame is the stock market — along with price of commodities.

But that’s one thing the Fed is really quite good at: creating inflation while skewing asset prices to the upside with waves of liquidity.

It is magic, I tell you. Until, of course, it’s not.

Which is why, with the end of QE2 fast approaching, the markets have been selling off. As for what comes next from the Fed, it’s anybody’s guess.

As for me, I fully expect that, given the choice between deflation and inflation, the Fed will choose inflation every single time. They just can’t help themselves.

That’s why I eventually expect a dose of QE3, which will push gold and silver to new heights. Just don’t expect it to work.

Meantime, until Wall Street gets the wink and the nod from the FED, you can expect the markets to stay mired in their current downtrend.

As for your own portfolio, here’s a story that illustrates my best advice, if you find yourself feeling completely overwhelmed by the downswing. It’s a story from the 1920s involving none other than J.P. Morgan…

One day, a young man came up to Morgan and said, “Mr. Morgan, I’m sorry to bother you, but I own some stocks that have been acting poorly, and I’m very anxious about these stocks. In fact worrying about those stocks is starting to ruin my health. Yet, I still like the stocks. It’s a terrible dilemma. What do you think I should do, sir?”

Without hesitating, Morgan replied, “Young man, sell to the sleeping point.”

Of course, that’s not the only way to preserve your gains…

As our own Ian Cooper explains, savvy investors can also use options to help them sleep better at night. To learn more, check out Ian’s free brand-new tutorial for trading options.

For more market wisdom, our editors have put together a few of their best ideas for the years to come in our past week’s Wealth Daily and Energy & Capital articles, below.

Your bargain-hunting analyst,

 steve sig

Steve Christ
Editor, Wealth Daily

The Fed’s Game Plan: The Most Destructive Sleight of Hand of All Time
Editor Luke Burgess explains why, by June 30th, America will face its toughest decision in more than 200 years: Either declare our nation insolvent, or send the price of everything you buy through the roof.

Options 101: How to Boost Your Gains in Any Market
In this one of a kind tutorial, Options Coach Ian Cooper, explains why trading options outperforms stocks in any market condition. Puts, Calls, and Strike Prices — Ian explains it all in an easy-to-understand new video.

But We Don’t Have Another 9.48 Million Barrels: Great Recession 2.0 or $150 Oil?
U.S. crude stockpiles are down; demand already outstrips supply, and the IEA says a tidal wave of emerging market refineries is coming online and will demand to be fed… Where will the world get its oil? Chris DeHaemer tells readers the two places that will supply the globe with crude in the years to come, and how you can profit.

Failing Jobs Poison Retail’s Soup: What to Do When the Truth Slams Through Your Shopping Center’s Doors
Adam Lass shows you how to leverage the collapse of the “Great Obama Boom”.

New Ways to Top Natural Gas Profits: The Bullish Outlook on Natural Gas
Editor Keith Kohl reveals a new way for investors to take advantage of the IEA’s bullish outlook on natural gas.

Pentagon: Oil Supply Disruption Plausible and Likely: The Transition to Renewables Begins
“The realities of global oil markets mean a disruption of oil supplies is plausible and increasingly likely in the coming decades.” — Pentagon Operation Energy Report

Four Key Drivers in China’s Gold Future: China’s Gold Demand to More than Double
Given the increasing prosperity in the world’s most populous country, Wealth Daily Analyst Luke Burgess tells investors all signs point to increasing gold demand in China.

Using Options to Invest in Energy: A Better Way to Buy Stocks
If you’re like I was when I began investing, you’re splitting the few investment dollars you have into the handful of stocks you think will go higher. That’s what I used to do before I found a better way… and that’s what millions of Americans still do.

The U.S. Has Defaulted: How to Profit from the End of the Dollar
Christian DeHaemer tells you how to profit from the ongoing default by the U.S. government.

6 Alternative Energy Stocks that Could Double: Only An Idiot Would Buy These Alternative Energy Stocks
Editor Jeff Siegel reveals 6 alternative energy stocks to buy before the next rebound.

Marcellus Shale Bulls: What’s Goldman Up to This Time?
Analyst Ian Cooper questions Goldman Sachs’ latest forecast, uncovers the latest and most exciting Marcellus exploratory news, and offers readers two simple ways to profit from the nat gas boom.

Nickel Prices to Drop: Nickel Will Fall Victim to Oversupply
Analyst Luke Burgess tells investors the price of nickel may be headed south as an oversupply threatens to flow the market with the white metal.