Tags: fed | bernanke | inflation | hyman

The Next Bout of Inflation Just Began!

By    |   Sunday, 29 April 2012 01:48 PM EDT

Last Wednesday, the market got the confirmation of the backstop that it needed when the Fed announced the interest rate and then stated that if the economy got bad enough, they’d be willing to do QE3.

Well, that was all the market needed to hear in order to rally. You see, investors know things are still rough. But if they get “more rough,” then the Fed will step in and help out the markets by printing money.

If the economy doesn’t get worse, then of course stocks would be OK in that scenario, too. So either way, it was the Fed’s way of trying to encourage stock buying going into the November election.

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You see, if they can just get investors to keep things propped up on their own without stepping in, they’d prefer that route. But if they have to make good on their word and print money, they’ll do that, too.

So when all of this was revealed, the U.S. dollar broke its eight-month uptrend line. In fact, even over the last couple of months, the U.S. Dollar Index has been forming a triangular sideways consolidation. Let’s take a look at it below. (Article continues below chart.)

Click on chart to enlarge.

Of course, the Fed’s potential for QE3 was news enough to break this triangular pattern and send the dollar lower.

I believe the Fed wants to reflate assets like stocks. But what they’ll end up doing is causing more inflation more than anything. That’s bad news for the average consumer, but it’s good news for you and I that know how to play the Fed’s game.

You see, if the Fed prints more money, that’s going to send the dollar lower, and it’s going to send people heading toward “hard currencies” like gold and high yielding commodity-currencies like the Aussie dollar.

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Both of these will be huge beneficiaries as the Fed sends along the next wave of inflation. Also, the Aussie dollar’s interest rate of 4.25 percent goes a long way toward fending off inflation, too.

So with gold you’re going to have some solid appreciation as the dollar falls and the next round of QE gets under way. But with the Aussie dollar, you’ll gain appreciation and interest. Both will do well in fighting off inflation’s effect upon your wealth.

Therefore the thing to do is not what “should” be done but what the Fed is “going” to do. They’re going to print money even though they shouldn’t. Therefore, you’ve got to play by the rules of that game and buy what benefits from money printing and inflation and shun what doesn’t.

The dollar will get undermined during this period, and assets that benefit from the rise of inflation like gold and the Aussie dollar will come out on top.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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Sunday, 29 April 2012 01:48 PM
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