Bull Market based on FED “Funny Money Creation”

I’m a big fan of the Financial Trend Forecaster Web site.

In it’s latest free newsletter, which I get via email it is still telling me this market is still a traders market and NOT an investors market. Under current analysis it goers on to say;

NYSE Rate of Change Chart

“The ROC has continued its blastoff  reaching  35.89% improvement over year ago levels. Back in February of 2004 the NYSE ROC peaked at  41.95% so we are approaching those lofty levels.”

Here is the caveat;

But this is not your average rebound,  it is a rally based on unprecedented levels of Federal “Funny Money” creation.  So the question is, how long will the rally last?”

In separate readings of my own I have found out the FED has created trillions of dollars in funny money. Helicopter Ben Bernanke has stated on more than one occasion he is happy to print as much money as it will take to resolve the financial crisis. Like Geithner he believes that they can quickly resolve any inflationary growth in the economy but deflation is too hard to deal with.

One thing about deflation is it helps the poor – it makes things they buy cheaper. The problem is those with debts are in serious trouble. The biggest debts are held by the rich and powerful often found “in bed” with the government. So is it any wonder the government is telling us deflation is bad for us.

Regardless of what Bernanke says if inflation takes hold he will be chasing it. Once it takes hold it will spread like wild-fire as the public panics trying to change their dollars for hard assets and only exacerbate the problem. The Government will be very reluctant to bite the bullet and virtually stop the economy as Volcker did in the 70’s when inflation was in double digits.

“Volcker’s Fed is widely credited with ending the United States’ stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983.”

A Democratic Congress won’t do this. So I don’t know how Bernanke hopes to stop inflation which will occur as a result of all the “FED Funny Money” he has created.

Mr Volcker actions to stop inflation were not well received by anyone.

“Volcker’s Fed also elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve…”

Financial Trend also has an inflation web site for “Moore Inflation Predictor“. Interestingly it states that deflation has almost finished. So we had some despite what Bernanke is saying about avoiding it.

The MIP is predicting inflation will be around 5% a year from noimagew. But again they issue a warning;

But once the effects of the “stimulus” package kick in we will probably see massive inflation (perhaps even hyperinflation).

So be warned and prepare your nest egg for this eventuality. That means cash is out and hard assets are in. Good debt should also be considered as this helps redistribute the wealth – to you via inflation.

During high inflation you pay your debts with dollars dropping in value. This is a good thing for you. Don’t forget to follow Daniel Amerman and take his course, “Turning Inflation into Wealth“, which now includes a new section on “Turning Manipulated Markets into Wealth”. As he says,

I strongly believe that gaining a thorough understanding of (1) Asset Deflation, (2) Monetary Inflation and (3) Inflation Taxes will be the single most important thing you can do to protect and improve your standard of living over the long term“.

This ties in with my own thinking that you should forget trying to read investment letters and fund prospectus documents. They are already out of date and don’t really tell you much about what will happen to your money in the long run.

Investment newsletters encourage short term buying and fund prospectus documents are sales promotions.

Try and understand the big picture as Daniel Amerman explains it to you. Failure to understand the “grand view” is not an option if you are a Baby Boomer in Retirement and want to protect your nest egg.

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