By Craig R. Smith
Chairman, Swiss America
Jan. 25, 2012
The Federal Reserve decided today to hold interest rates at 0.25% until late 2014. This is, in essence, another form of quantitative easing. Call it QE 2.5.
The Fed obviously doesn't buy into the growth scenario the White House and equity markets are pitching. They must know something about the underlying fundamentals of the economy that the administration doesn't seem to get. I suspect part of this knowledge is that Europe is far worse off than anyone predicted.
This decision also signals the Fed is going to buy additional securities. The 10-yr. Bond yield dropped from 2.05% to 1.975 after the announcement.
This is the most dovish position the Fed has taken since the crisis of 2008. Apparently the shape of the banks and unemployment are of more concern than keeping the value of the US dollar solid. Ben Bernanke is forcing people into equities with artificially low interest rates, further distorting real values in stocks and real estate.
I suspect a weakening of the dollar will be the result of this move. Equities, while showing mixed signals after the Fed move, will come under pressure as this move is viewed as a response to a weakening economy. Then the Fed will unleash QE 3, QE 4, QE 5 and so on. The DOW's response? It will likely soar.
Gold prices started the day down, as much as $13/oz., Wednesday, then abruptly reversed after the Fed news, rushing up $44/oz. to $1,710/oz. The Euro and other currencies are also strengthening which may continue. Gold is clearly the safest place to be in 2012.
Today Bloomberg News stated that, "Gold provided the best returns of all commodities in the past five years when adjusted for volatility, and Goldman Sachs Group Inc. says the rally will continue as options traders signal no change in the metal’s relatively low risk."
I believe the U.S. is headed for a recession by the end of Q2 . If we are lucky it will be mild, but with China slowing and trouble as far as the eye can see in Europe, it may be worse.
Europe WILL have a severe recession, forcing the Fed to print money to accommodate the IMF. Bottom line: OWN GOLD! There is no other answer until this handful of elites steps aside and allows the free markets to do what they do best.
The Fed's decision is nothing short of a declaration of war against American savers. Savings accounts will yield a guaranteed negative return as well as the loss of future buying power. We the People are far better managers of free markets than Bernanke, Geitner and Obama - all of whom should get real jobs before they crash the American economy.