Written by Andrew Snyder, Editorial Director, Insiders Strategy Group, insideinvestingdaily.com
Central bankers around the globe made a bold coordinated move yesterday. It is proof that now is the time to buy.
The debt solution we all knew was coming is here. Inflation — major inflation — is on the way.
The Federal Reserve led the way, but this time, it has accomplices across the globe. The planet’s largest central banksters made a synchronized move yesterday to flood the developed world with cash.
The ECB was in on it. Switzerland was there. So was Canada, Japan and Britain. Even China got in on the action when it announced it will lower its bank reserve requirement. It’s all part of an effort to use pennies to pay dollars’ worth of debt.
There’s only one problem… and it’s a biggie.
You and I get screwed.
Almost immediately after the news, oil surged. It jumped back above the critical century mark. That means everything from the fuel you burn to the food you eat will rise in kind.
Gold bugs have known this sort of thing was coming.
It had to. After a generation of frivolous spending and piling up unimaginable debt, inflation (and lots of it) is the only way out.
But it’s a political solution to a monetary problem. Central bankers know easy money won’t solve the crisis. But their hands are tied; it is the only solution that will give their bosses an easy way out.
That’s why we point a finger at Bill Gross this week and laugh.
After he swung for the fences and fell on his face by shorting U.S. debt, the famed — now infamous — fund manager is telling investors to feel blessed if their portfolio averages 5% gains over the next five years.
“Because of Euroland’s family feud, because of too much global debt, because of deflationary policy solutions that are in some cases too little, in some cases ill conceived, and in many cases too late,” Gross tells us, “financial markets will remain low returning and frequently frightening for months/years to come.”
More likely… he’s working to dust over his fund’s paltry 2% gain so far this year.
In reality, today’s monetary policy is anything but deflationary and thanks to the latest round of liquidity injections, 5% gains will look more like the average daily gain versus the annual return.
Need proof… look at yesterday’s market action. Ba-Boom!
Remember, inflation is good for the stock market… until it’s not.
Confused? Let’s put it this way. At first, inflation artificially boosts corporate earnings. All of a sudden, companies are getting more dollars for the same amount of goods.
The number of widgets sold may only increase by 2%, but thanks to a currency that’s worth far less, the actual revenue figure may be exponentially higher.
Your neighborhood gas station is a great example. When a gallon costs a buck, each stop you make adds about $15 to its top line. But when it surges to $4 a gallon, you’re now shelling out $60.
Sales surged… but you didn’t buy any more gas.
But this scheme won’t last forever. Eventually, the consumer goes broke. His income can’t keep the pace. Instead of buying 15 gallons of gas, he buys 7 gallons and spends the weekend at home.
That’s when the junk hits the fan. That’s when the stock market plunges. And it’s when your financial security goes up in smoke.
But by that time… Bernanke will be long gone. So will Merkel, Obama and Sarkozy. They’ve set their families up for a life of riches for generations to come.
Too bad you and I will still need to eat and pay our bills.
The solution to the problem — at least for today — is real simple. In fact, farmers have been using this strategy for ages… Make hay while you can.
I’m as bullish now as I was at the market lows in August (it was a bold move that paid off quite well for many readers).
Soon enough, the folks hoarding gold will get their ultimate payoff. They’ll be holding the only real currency. But that time is not now.
Now’s the time to be in the market. It’s the only way you’ll keep up with the pace of inflation.
P.S. Like we’ve said several times over the past few weeks, one of the best ways to take advantage of an inflation-fueled market is small caps. When the markets are surging forward, it’s the small guys that lead the way. It is exactly why we just pulled the curtain on our latest newsletter… Small Cap Insider.
Written by Andrew Snyder, Editorial Director, Insiders Strategy Group, insideinvestingdaily.com
