Well the FED chair Powell made his trip to the Hill yesterday and the day before to testify before this committee and that committee. And each one of these bastard politicians was trying to look good for his base like usual.
But what is clear is that the new chair has no different policies, willingly or unwillingly, than those before him. The policy is clear, support asset prices. This support is coming in two forms, interest rates and liquidity provided by the assets being held by the FEDs.
Take interest rate for example, it quickly cascaded to the housing market. If houses prices start dropping that is going to impact the capitalization of the banks and their balance sheet. When you compound that with the FEDs shrinking their balance sheet, sucking up more liquidity from the banks, then the banks might be “upside down” on their balance sheet despite the fractional money system. That means the banks do not even have 1/10 of their liability in real deposits. That is why the banks were super quick to increase the interest rates on CDs to entice depositors to bring cash to the banks.
What is clear here is that from now, and unless some crisis happens, we are not going to see the FEDs increasing interest rates anymore. You do not have to be patient or “wait and see” unless you are getting ready to go the other way. Also, the balance sheet is not going too much below what it is right now.
For those who believed for the longest term in the “cash is king”, we are coming to the point where the kings is going to be sacrificed. And not just this king, cash around the world is going to be trash. That is just a result of financial central banks becoming the monster that they were supposed to guard against.
People through out history have been robbed out of their lives by using money. Money is supposed to be an honest medium to store one’s wealth to be traded with others for something equivalent. Say I made and extra pair of shoes that I do not need. I need food. I sell my shoes and then take the money and buy food in installments. I do not need all the food in the world today, I need little every week for example. Money was supposed to facilitate that transaction period. But, for the above system to work, the trading units “money” has to have a natural equilibrium determined by the market. So if the “free market” deemed a pair of shoes is worth 4 bushels of corn, then if a pair of shoes are sold for 20 “shekel” then that 20 shekel would buy me 4 bushels of corn.
But imagine now that someone figured out how to “invent” shekels from thin air. This person would be able to buy whatever he/she wants. On top of that, the abundance of the shekels in circulation will lead to a new equilibrium in which my shoes are not worth 25 shekels and so are the 4 bushels of corn.
But if I had bunch of shekels saved up, now they are worth 25% less. And if I get paid a fixed amount of shekels as a salary, now I am 25% behind the curve. That is what happens when central banks around the world control how much money exist, people are being robbed daily.
All this talk about investing, is trash. Here comes the financial advisers, the hedge fund mangers, the retirement specialists, the local bankers, etc. They are helping you “grow your money”. In reality they are all getting paid to maybe, long shot maybe, keep your wealth and maintain your buying power.
What is the point of growing your “portfolio” by 5-7% a year, a claim Warren Buffet made when he said investors should be happy with 5-7%, if inflation, the unaccounted for shekels, is running at 10%? What is the point of working all your life for 1000,000 shekel if all you did is paid it to pay for shelter, your won house.
To get ahead in this world you must control your wealth and your buying power in relative terms, not absolute terms. You must always be in debt not out of debt as they teach you. But you must have “cash flow” that sustain that debt. Say you buy a house for 100k. You pay 20% down and you finance the rest. You rent the house for an amount that cover your mortgage, expenses and leave couple of dollars in your pocket. That guy who is renting the house is the hamster on the wheel, and you are cash collector.
Make not mistake about it, it is a zero sum game. The wheel does not run buy itself.