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Did the Fed Really Say Inflation Isn't High Enough?


What the Fed statement really means for your portfolio.


Get ready everybody. Things are about to get a lot more expensive. In yesterday's FOMC statement, for the first time that I know of, the Fed stated that prices aren't rising fast enough. The actual words were this, "Measures of underlying inflation are currently at levels somewhat below those the committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability."

They must be referring to the CPI but we all know that measure has been artificially engineered for decades. That's why you can't look to TIPS as an accurate gauge.

Maybe they haven't checked the prices of commodities recently. Below are the performances since June 1 (a little more than three months ago).

  • Corn +42%
  • Copper +12.6%
  • Crude +2%
  • Cotton +27%
  • Coffee +38%
  • Gold +6%
  • Silver +14%
  • Dollar -8%

So if you think this isn't going to feed into your daily purchases at the local grocery store, then I have some oceanfront property to sell you in Arizona.

It's almost unbelievable. But what's worse? The committee stands ready to provide additional accommodation if needed to support the economic recovery. Translation: We're going to buy more bonds. It's no wonder Treasuries rallied post FOMC. Traders are simply front running the Fed.

As usual the true lone hawk Thomas Hoeing dissented. See my recent comments on hawks and doves at the FOMC.

So what does this mean for your portfolio? The currency debasement trade is still on and very strong and inflation beneficiaries will continue to outperform. Gold mining plays will shine as well as stocks with dollar-denominated liabilities and revenues coming from other countries with more stable currencies. If gold's not your thing, look to McDonald's (MCD), YUM Brands (YUM), and Walmart (WMT) as some potential plays.

Lastly, if you're watching spot gold today and wondering why SPDR Gold Shares (GLD) isn't tracking gold as good as it should be, that's just the difference between the Comex close, which is at 1:30 PM EST and the close of the equity markets. Don't let the monkeys tell you that it's contango because GLD doesn't even use gold futures.

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Position in gold stocks

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