Helicopter Ben gets a bloody nose in this article.

Cheers - VHF

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The Biggest Lie in Finance Today (Are You Falling For It?)

Graham Summers

January 20, 2011

So it’s all about stocks?

Our esteemed Fed Chairman, now claims that QE has helped by raising stock prices. That was never a reason he listed for launching QE before. In fact, this is the first time he’s even mentioned this as a benefit (though everyone with a thinking brain knows that the Fed doesn’t give a hoot for anyone other than Wall Street which is why ALL of its moves were intended to help them juice the markets).

Why is he suddenly saying this?

It’s simple, because the market has proved he’s either incompetent or a liar (likely both) when it comes to QE. After all, he repeatedly said the reason we needed it was to boost employment and lower interest rates.

Well, 7.3 million people have lost their jobs since the Bear Stearns collapse. The Fed claims that this number would have been a lot worse without QE. It’s a pretty brilliant argument considering that there is no alternate universe where the Fed didn’t employ QE to compare to, so there is literally no evidence that refutes the Fed’s claim.

However, the fact remains that we spent over $2 trillion and still lost 7.3 million jobs. Hard to see the success rate of that policy. And given that the only folks hiring and raising salaries and bonuses right now are Wall Street firms, it’s pretty clear which demographic QE has TRUTHFULLY benefitted from an economic perspective.

As for QE keeping interest rates low, like I said, Bernanke is either incompetent or a liar. Given the abysmal performance QE has had in containing interest rates, I’d say it’s both:

As you can see, interest rates have soared BOTH times the Fed implemented a new QE program.

In light of this abject failure, it’s no surprise that Bernanke is now fishing for any justification for his insane policies. However, even his claim that QE has pushed stocks higher is a big fat lie as MOST of stocks’ gains have been a direct result of inflation or decreased purchasing power.

Indeed, in nominal terms, stocks have rallied 91% since their March 2009 low. However, when you account for Dollar devaluation by pricing stocks in Gold, you find that nearly two thirds of stocks’ gains have come as a result of the US Dollar lowing purchasing power. Put another way, stocks have only rallied 31% since their March 2009 in REAL terms.

And it looks as though stocks are about to drop even MORE in real terms.

As you can see, stocks have outperformed Gold since December. However, priced in Gold they’ve recently been rejected at long-term resistance. to 0.925 if not 0.90 (meaning Gold would greatly outperform stocks on a relative basis).

Indeed, while I think stocks are more than overdue for a correction, I view the latest pullbacks in Gold (and Silver) as MAJOR buying opportunities for both inflation hedges.

Let’s be blunt, the Fed is going to do one thing and one thing only: print money. And while stocks might benefit somewhat from this, inflation hedges like Gold and Silver will positively EXPLODE higher.

After all, while stocks are up only 31% in REAL terms, Gold has soared 58% while Silver has more than DOUBLED. One can only imagine the returns investors will see in the coming years as the world’s central banks (lead by the Fed) print us into oblivion.