Late last year I wrote about a client, who after only four months with me, was concerned about the performance of his portfolio. We were up slightly, and compared to stocks which were down slightly at the time, I reasoned that we were doing all right. No matter how hard I tried to explain this, he wouldn't, or couldn't, hear me.
During the second quarter of 2010, the Fed warned about the threat of deflation. If deflation had occurred, the price of stocks, bonds, commodities, etc., would likely have fallen. But they didn't fall and deflation didn't materialize. Why? Because the Fed embarked on another round of printing money. As a result, the dollar is weaker, so it takes more dollars to purchase goods. Inflation is not a naturally occurring phenomenon, it is Fed induced. The Fed, considered by some to be the fourth branch of government, has tremendous power without the constraint of Congressional approval. In other words, the Fed can print as much as it wants. Back to my client.