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"The Federal Reserve is the engine of inflation." -- Murray Rothbard
"People really hate inflation." -- Christina Romer (UC Berkeley)
The Fed used to be wildly profitable and would send tens of billions of dollars to the U.S. Treasury every year, helping to reduce the deficit.
It was easy money. As the veteran Barron's writer Allan Sloan says about the Fed, "they pretty much create money out of thin air and use it to buy interest-bearing investments whose income exceeded the banks' operating costs."
But two years ago, everything changed when the Fed started raising rates. The Fed's balance sheet fell off the cliff (see chart below).
Like the Post Office, the Fed is now hemorrhaging money to the tune of $200 billion, making the deficit worse.
Joe Biden's final year in office will leave us with a $2 trillion deficit!
Now the Federal Reserve banks have to pay 5% on deposits from financial institutions and money market funds, and the yields the Fed earns on its assets (Treasury bonds and mortgage securities) are far less than that, given that they bought many of these assets during the financial crisis 2008-09 (known as Quantitative Easing or QE), when Treasuries were paying 1% or less and most subprime mortgages stop paying entirely.
Result: The Fed is now losing billions every year, and the deficits are widening. And that means for more inflation down the road.
The Permanent Inflation Hypothesis
This is one more example why I argue that inflation is here to stay. Yes, the inflation rate can come down, as it has been doing in the past year, but notice that prices are still rising. Gasoline rose 4% in December. Prices also rose for food, shelter and airline travel.
I had to laugh when the Bureau of Labor Statistics said that food prices rose only 1.8% in the past 12 months. Seriously? Recently, my wife went to the grocery store and paid over $200 for two bags of groceries. At the AEA meetings in San Francisco, I paid $60 for a buffet breakfast at the local Hilton Hotel.
The fact is that we have been in an era of permanent inflation since World War II, as this chart demonstrates.
Who's to blame for this inflationary era? There are many causes: bloated government, chronic Keynesian deficits, never-ending wars and printing too much money after going off the gold standard (as you can see from the chart above, inflation hit bottom in 1933, when FDR took us off the gold standard, and accelerated in 1971, when Nixon closed the gold window to foreigners). Few countries have the discipline to control inflation these days. | | Top 20 Living Economist Shares the Largest Position in His Personal IRA Investing legend Dr. Mark Skousen recently gave a talk to a small group in the heart of Washington, D.C. In it, he revealed the cornerstone of his retirement plan -- and the one investment that helped make him a millionaire. Click here to watch Dr. Skousen's presentation -- and learn about "the best way to become a millionaire in America." | | | Ben Bernanke: 'What, Me Worry?'
At the American Economic Association (AEA) meetings earlier this month in San Francisco, former Fed chairman Ben Bernanke appeared and received a standing ovation from the audience, who cheered the man who bailed out banks and got us through the financial crisis of 2008 and then left the Fed with trillions of dollars in liabilities. The Swedes even gave him a Nobel prize.
Meeting with Ben Bernanke in San Francisco
Bernanke insists that the Fed should keep his 2% inflation target (adopted in 2012) and adopt "Quantitative Easing" whenever there's a crisis. That's another reason why inflation is built into the economic system.
I asked Bernanke whether he agreed with the frequent criticism that the Consumer Price Index (CPI) -- the official measure of inflation -- grossly underestimates the rising cost of living in the United States. He quickly dismissed the idea, saying the Bureau of Labor Statistics does a good job of measuring price changes in over 1,000 goods and services.
It's clear that government and academic economists are disconnected from what is happening in the real world.
What Are the Best Inflation Hedges?
Killing inflation will be a tall order for the new Trump administration, and I'm skeptical that much can be done to bring back the glory days of low inflation, low interest rates and low taxes.
So, while we wait…
I firmly believe that investors need to earn at least 10% a year in their investments to stay ahead of inflation.
Indeed, that's exactly what we have been doing for years in my newsletter Forecasts & Strategies, with some stocks, funds and commodities going up 30-50% in a year. We have a well-diversified portfolio that performs well in good times and bad.
To beat inflation, I urge you to subscribe to my monthly newsletter, which includes a weekly hotline and special reports.
Story of My Favorite Stock
For example, my favorite financial stock rose 47% last year and has risen over 1,000% (including dividends) since I first recommended it in early 2012. It's the only stock I know of that pays a monthly AND quarterly dividend. And it's still selling for less than 10 times earnings and yielding an annual dividend rate of 7%!
To subscribe, go to www.markskousen.com, or call Eagle Publishing at 1-800-211-7661. | | Frustrated Farmer Solves Traders #1 Problem Using A.I. Do you know the #1 reason independent traders lose money?
It's because they are trading the wrong thing. In fact, they don't know what to trade.
It's that simple.
That's why I'm writing to tell you I've been happy on the ranch, but I've been so frustrated by watching other traders lose money that I wanted to make sure you heard about VantagePoint's A.I.
So, to celebrate the New Year, I'm going to teach you how to find what to trade using an A.I.-powered scanner. | | | A Financial Quote for the Day
At a recent MoneyShow, I met up with one of our new editors at Eagle, Hugh Grossman, who writes the popular "Day Trade Spy" trading service.
He wrote our publisher the following: "I must say, I have a bone to pick with Mark. I bought his book, 'The Maxims of Wall Street,' and it kept me glued to it until about 2:30 this morning when I could no longer stay awake… it is just that compelling! Most other trading books are a sure cure for insomnia… not Maxims! Well done, Mark! Getting that book was worth every cent of the trip for me." Thank you, Hugh.
He suggested this quote for the day using a baseball analogy: "The odd home run creates short-term riches but it's the singles and doubles that create long-term wealth!"
So true! And that's the approach we take at Forecasts & Strategies: high returns with conservative investments that can grow and pay a nice dividend.
"The Maxims" isn't just a series of financial quotes, but each statement is found in a specific category, such as "growth and income," "contrary investing" and "penny stocks and gold bugs."
Plus, there are lots of short stories, including the ever-popular "Rich Man's Pearls of Wisdom" (six in all).
Alex Green, the chief investment strategist at the Oxford Club, writes, "Mark Skousen has collected a treasure trove of proverbs, slogans, stories and juicy quotes. I found myself chuckling (and occasionally sighing) when I first read this book. And I still refer to it regularly."
That's what I hear from readers more and more. They don't just read it once and put it on the shelf gathering dust. They keep it in their office or bedroom and read from it regularly.
As Dennis Gartman, editor of the Gartman Letter, told me, "It's amazing the depth of wisdom one can find in just one or two lines from your book. I have it on my desk and refer to it daily."
And Kim Githler, president of the MoneyShow, likes the book so much that she highlights the quotes on the screen every day at the MoneyShow. "It's my favorite book. Every quote is a lesson in finance."
Subscribers continue to order multiple copies -- including one order this week for a whole box (32 copies) -- to give out to friends, relatives, colleagues and clients. It makes the ideal gift.
As Bert Dohmen, editor of the Wellington Letter, states, "Beautifully bound collector's item, it should be on every investor's bookshelf and read regularly."
Despite rising inflation, I've kept the price at a bargain: $21 for the first copy, and all additional copies $11 each. (A full box of 32 is only $327.) I autograph and number each copy and mail them at no additional charge inside the United States.
To order, go to www.skousenbooks.com.
Speaking This Weekend
I look forward to seeing many of you at the LA chapter of AAII this Saturday, Jan. 18: January 2025 HOTEL Angeleno/Webinar NOTICE -- Image of HOTEL Angeleno -- AAIILA.org
Special Sesson at FreedomFest: 'What Are the Best Inflation Hedges?'
We are going to have a special session on "What are the Best Inflation Hedges?" at this year's FreedomFest, scheduled for June (not July!) 11-14, 2025, at Palm Springs, California (free of fires!).
Panelists will include Alex Green (Oxford Club), George Gilder (Technology Report), and Jim Rogers (from Singapore).
Super Early Bird Discount Ends on Jan. 31!
Make your plans now to come to the greatest libertarian show on earth: FreedomFest, June 11-14, 2025, at the Palm Springs Convention Center in California. The beautiful Renaissance Resort Hotel is right next door (we have a room block that is filling up.)
Other speakers: Larry Sanger, the co-founder of Wikipedia (he came up with the name), who will speak on "The Threat of Centralized Control of Social Media and What Can Be Done About It"…
I will also be debating John Tamny, publisher and editor of RealClearMarkets, on his dangerous new book "The Deficit Delusion."
We are also happy to welcome back Marc Eliot, Hollywood's biographer, who will talk about Hollywood's love affair with Palm Springs as THE getaway for the jet set; he will be leading a tour of the secluded homes of Frank Sinatra and other celebrities.
Plus, hundreds of speakers to be announced soon.
See you in Palm Springs in June!
Take advantage of the "Super Early Bird" discount, only $400 per person. It ends on Friday, Jan. 31! To sign up go to www.freedomfest.com and use the promo code EagleSEB or call Hayley at 1-855-850-3733, ext. 201. I look forward to seeing you there!
Good Investing, AEIOU,
Mark Skousen
Doti-Spogli Endowed Chair of Free Enterprise, Chapman University
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FreedomFest | | 'Shock Therapy' Works in Argentina: Best-Performing Stock Market Last Year By Mark Skousen
Editor, Forecasts & Strategies
Last year, the Argentina stock market was the best-performing market in the world, thanks to the significant changes that President Javier Milei has instituted since taking office in late 2023. And it's already up this year.
Milei has performed well: his administration has balanced the budget, deregulated much of the economy and brought price inflation down.
In December 2024, inflation stood at 2.7%, the third consecutive month in which prices rose by less than 3%. The data "confirms the disinflation process is continuing," stated the economic minister.
Milei has adopted strong austerity measures, cutting government spending by a third. Even the economy is starting to move up. And he was able to do it without protectionist measures. In fact, he has encouraged foreign investment and open markets.
Despite labor strikes and an increase in poverty, Milei remains popular with the majority of Argentinians. They have had enough of the bad policies of the Peronistas and are willing to give Milei a chance to prove himself.
Investors are also impressed. More and more investors are convinced that President Milei's "shock therapy" is working. We're one of them -- we've been recommending an investment in the Argentina stock market throughout the year, with great success.
Could this be a trend in the rest of Latin America and the world? The United States, Canada and even Vietnam are now talking about cutting back the State. Onward! | | | About Mark Skousen, Ph.D.:
 Mark Skousen is an investment advisor, professional economist, university professor, author of more than 20 books, and founder of the annual FreedomFest conference. For the past 40+ years, Dr. Skousen has been investment director of the award-winning newsletter, Forecasts & Strategies. He also serves as investment director of four trading services: TNT Trader, Five Star Trader, Low Priced-Stock Trader, and Fast Money Alert. | | | | | |
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