Best Financial Markets Analysis Article Today is Friday, April 8, 2011. Japan was hit with another earthquake this week. Portugal joined Greece and Ireland for a ECB bailout rendering them a ward of the EU state. The US Congress has yet to agree on a budget for the fiscal year as they haggle over spending cuts. The Republican plan is to leave the citizens with $15,800,000,000,000 dollars of debt in another year and the Democrat plan is to leave the citizens with $15,900,000,000,000 dollars of debt in another year. The current WHO (White House Occupant) has proposed a budget with a deficit of $1.6 trillion. Added to the current debt of $14.3 trillion, I extrapolate the debt in another year to be $15.9 trillion. So, our ‘representatives’ are arguing over whether or not to cut a paltry $100 billion from the proposed budget. Let’s be honest. Does it really matter any more?

Again, if I must, I will offer my services to find a solution to a balanced budget. In return, I expect to be compensated like the CEO of a big bank. What follows is the simple solution.

First, we must realize that the Federal Reserve is an organization of incompetence run by dunderheads! Before readers jump to a conclusion about my assessment, let’s review the evidence. The Fed has been trying frantically to make sure to pillage the US Treasury and redistribute the wealth of the United States into the pockets of the big bank CEOs. Uh - I mean, they have been trying frantically to resuscitate the US economy with a policy of artificially low interest rates. They have done so in part by implementing the so-called QE2 program under which the Fed has become the largest purchaser of US debt in the world. Fed Chairman Bernanke announced the strategy on September 1, 2010. Soon after, the Fed began systematically buying US Treasury notes and mortgage backed security paper. In all, their plan was to buy $900 billion dollars worth by June, 2011. They of course, carry this action out with our money procreated by our Treasury!

Let’s get back to my premise of the incompetence and the dunderheaded behavior. Witness the chart below to see that the 10-year US Treasury bond price (the green line) has declined by about 10% so far (since QE2 implementation). The Fed has in essence, taken our money and lost 10% in about seven months. I don’t even want to speculate how much they have lost on the mortgage paper. But so far, let’s stick with the Treasuries and as evidenced by the chart, we have lost about $90 billion dollars on the strategy. Is the word ‘incompetent’ beginning to ring true?

Well, I guess the word ‘dunderhead’ could also be applied as we look at the other line on the chart. That black/red line is the price of silver over this same time span. It has doubled. Why didn’t Bernanke order the Treasury to print up a trillion bucks and just buy silver? QE2 has been the catalyst driving silver to today’s price of over $40 dollars per ounce. If Ben had bought silver instead of Treasuries with our trillion, we would now be up a trillion instead of down $90 billion. Nice going, Ben! Don’t you wish you had that guy for your personal financial advisor? Ha! Even worse, what if he were in charge of the whole country? Oh yeah - he is. No wonder we are in such terrible shape. Is the Fed really this stupid? Give the chart a good look and then read on for my budget balancing solution.

9/1/2010 - 4/8/2011 - SILVER in black/red and USB in green
Chart courtesy StockCharts.com

Okay. So we need about $14 trillion in a hurry least we join Portugal in complete surrender. We have a secret weapon. We have Ben Bernanke. If silver doubles every six months for every trillion we print, why don’t we have Ben announce QE3, run off another $2 trillion, and buy silver? We all know how he likes to print money! In a year and a half, our $2 trillion would grow to $16 trillion. We could pay off the debt and have $2 trillion left over for a party. We could invite the Chinese and Japanese over to smooth things over for destroying the currency of all those US bonds they bought from us. But hey - somebody has to be sacrificed! The budget can be balanced. We just need to use silver instead of Federal Reserve Notes or US Treasuries.

In case readers have not clued in on my sarcasm, there is an important point here for investors. Ben Bernanke has been silver’s best friend. QE2 comes to an end in June and the RSI (bottom of the chart) is showing the price of silver to be much extended at this point. Should the Fed withdraw their economic IV, investors should not expect silver to continue higher. On the other hand, should the Fed recognize that they ARE the economy and then resort to another dubious strategy to extend and pretend, silver will likely resume its march higher. Enjoy the dunderheaded Fed action but don’t get complacent.

Barry M. Ferguson, RFC
President, BMF Investments, Inc.
Primary Tel: 704.563.2960
Other Tel: 866.264.4980
Industry: Investment Advisory
barry@bmfinvest.com
www.bmfinvest.com
www.bmfinvest.blogspot.com

Barry M. Ferguson, RFC is President and founder of BMF Investments, Inc. - a fee-based Investment Advisor in Charlotte, NC. He manages several different portfolios that are designed to be market driven and actively managed. Barry shares his unique perspective through his irreverent and very popular newsletter, Barry’s Bulls, authored the book, Navigating the Mind Fields of Investing Money, lectures on investing, and contributes investment articles to various professional publications. He is a member of the International Association of Registered Financial Consultants, the International Speakers Network, and was presented with the prestigious Cato Award for Distinguished Journalism in the Field of Financial Services in 2009.

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Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented.

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