The Solution for the Fed–Do Nothing–the 1920-1921 Depression

A few days ago we learned of the Federal Reserve’s plan to twist and shout. The Fed will AGAIN intervene into the credit markets to push longer-term bond rates down while “sterilizing” the move by selling short-term notes. The Federal reserve will not increase the size of its balance sheet, but meanwhile monetary aggregates are rising at double-digit rates like back in the 1970s.

One result is that money managers who need more yield and duration are fleeing into long-term government bonds.  The bond market, in my opinion, is a death trap for investors. If the world doesn’t end, you will see a vicious snap back in interest rates.

Why is the Fed intervening and what is the solution to our economic mess?  Perhaps letting markets clear would be the answer. The cure for low prices is low prices.

A case history of a boom bust cycle that started and ended quickly with little intervention on the part of the Fed was the 1920-1921 depression. A lesson for today. Listen to the 45 minute lecture here:

http://www.youtube.com/watch?v=wguOq2GyYSY.

Today Friday at 10:40 AM markets are glum, the future uncertain, but a few high quality companies are on sale. Remember to be a pig farmer http://csinvesting.org/?s=secret+to+investing.

Time to buy scale down: CLX (be careful it has alot of debt), MDT, SYK, CPB, AMAT, MSFT, NVS and MDT (smaller position). In a future post I will present my reasons and the investing philosophy behind my approach.  I have followed these companies for years so I buy when they go on sale and sell when the prices indicate no discount from my estimated intrinsic values.  Buy high quality shoes on sale.

I always feel queasy when markets plummet, but then who said investing is easy. Fools rush in………

One response to “The Solution for the Fed–Do Nothing–the 1920-1921 Depression

  1. I could have added a few more companies, but the point is to have examples in real time and then tie the examples to the investment case study next week.
    Those stocks mentioned are NOT a recommendation for YOU. Let’s make and learn from our own mistakes.

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