The Federal Reserve’s Open Market Committee (FOMC) chose to keep the Federal Funds target rate at 5.25 percent in its September meeting, while leaving open the possibility of future rate increases. While we will not second-guess the market’s response to this latest Fed news cycle, we do have serious concerns regarding the larger issue of managing a fiat currency.
Our job is not to pontificate regarding the Fed’s leadership, nor is it to try to interpret the chairman’s latest utterances. Rather, it is to help our readers protect the value of their assets regardless of what might occur in the future, which by definition is beyond an investor’s control. The fact is we live in a world of currencies that cannot be redeemed for a tangible asset such as gold. The purchasing power of the dollar is in the hands of the anointed few who constitute the Fed’s board of governors and ultimately on the fiscal prudence of Congress and the President. In this environment it is best to focus on asset allocation, which is something an investor can, and should, control rigorously.
For many years now the Fed has proven adept at keeping price inflation at a reasonable level, but how long can it last? Congress refuses to acknowledge the twin debacles of Medicare and Medicaid or that Social Security retirement benefits are predicated on a “trust fund” that in fact holds no tangible assets. And, as our parent, AIER, recently noted, (Research Reports, September 25, 2006) this supposedly “conservative” Congress has shown nothing but contempt for any restraints on spending. Voters, meanwhile, have no tolerance for higher taxes.
The history of fiat currencies suggests that the government will ultimately resort to inflating the money supply in order to meet its obligations. This is not news, as this possibility has been well-publicized. It is therefore rational for investors to assume that the capital markets are priced to reflect this danger, and to take what those markets have to offer as a means of protection. Based on our review of asset class history, we recommend gold, Real Estate Investment Trusts and a variety of equity asset classes as the best line of defense.
Also in This Issue:
Merck: Case Study of a HYD Stock
New Recommendations: Goldcorp, Inc.
Investor Protection: Is Disclosure Adequate?
What To Do About The News
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield
Asset Class Investment Vehicles
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