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Just When You Thought You'd Seen EverythingNow, I don't want to sound like a dummy, but I have been watching the financial markets all my adult life, I have an MBA in international finance from a respectable university, and I still don't get it. Isn't the Federal Reserve the government? Then, how can the government buy its own debt? Let's pretend I'm in the widget business. My company issues bonds to fund our operations. If my company buys those bonds instead of investors buying them, where does my company get the money from? Wednesday, at the Federal Open Market Committee meeting in Washington, "officials" voted to expand the Federal Reserve's balance sheet by up to $1.5 trillion. Just like that! The witch in "Bewitched" couldn't do a better job herself. But where is the money coming from? If any of my readers can explain it to me, it would be much appreciated. At this point, the Federal Reserve has either bought or lent against everything from corporate debt, to consumer debt, to mortgages, to government debt. There is no real money in a reserve somewhere that is funding all these actions. At the end of they day, more money is simply being issued (the old printing press theory) or debt is rising. As an investor, with the astounding rate at which the money supply is expanding and at the unprecedented rate at which government debt is being accumulated, the value of the U.S. currency against other world currencies and gold bullion should be a primary concern. Is it any wonder gold stocks rallied late yesterday afternoon after the Fed announced its latest maneuver? More importantly, is your portfolio protected against deflation of the U.S. dollar with hard assets such as gold-related investments? It's not too late to do just that. Michael's Personal Thoughts: Yesterday, New-York-based investment firm Paulson & Co. bought 11% of giant gold miner Anglo American for $1.28 billion. Paulson & Co. is run by John Paulson, who also runs the Credit Opportunities Fund. Paulson is well-known in the investment world. Credit Opportunities Fund was up 37% in 2007, as Paulson bet that subprime mortgages would topple. Investors should take note of this purchase by Paulson. It is yet another example of smart money moving into gold-related investments as world government deficits soar. Where the Market Stands: The advance by the stock market over the last several days has been nothing less than spectacular. But this market is not rising because the economy is getting better. I'm down in Miami for the week and the once "condo boom capital of America" is in a devastating rut. People are so desperate for money that crime is even rapidly rising. No, the market isn't rising because the economy is getting better. The market is moving higher because stocks became oversold so fast. How high she'll go, no one really knows. My prediction has been that the market will recoup all of its 2009 losses before starting back down again. The S&P 500 is now up about 15% since this rally started. What He Said: "Recipe for Catastrophe: To me, the accelerated rate at which American consumers are spending, coupled with the drastic decline in the amount of their savings, is a recipe for a financial catastrophe." Michael Lombardi, PROFIT CONFIDENTIAL, September 7, 2005. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else. Profit Confidential --- http://www.profitconfidential.com/ LOMBARDI PUBLISHING CORPORATION News, Analysis, and Information Services Since 1986. One Million Customers in 141 Countries. Lombardi Publishing Corporation Financial Publications Division 350 Fifth Avenue, Suite 3304 New York, NY 10118-3304 --- Copyright 2008; Lombardi Publishing Corporation. All rights reserved. No part of this e-newsletter may be used or reproduced in any manner or means, including print, electronic, mechanical, or by any information storage and retrieval system whatsoever , without written permission from the copyright holder. Source: Free Articles from ArticlesFactory.com
ABOUT THE AUTHORMichael Lombardi, CFP, MBA, bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management.
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