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Janet Yellen: Investing in the Dark

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My thoughts on Janet Yellen from May of this year.

 

You can be sure there’ll be a price to pay for Federal Reserve Chairman Ben Bernanke’s easy-money policies. Retirees are already feeling the hurt with his 0% interest rates. There was a time, not too long ago, when savers and retirees could depend on Treasury bonds. Not anymore.

Investing-in-the-DarkNot only is the Fed keeping rates on Treasuries near zero, it’s also creating a false sense of demand with the $1.8 trillion it’s hoarding on its books. Simply put, the higher the demand for Treasuries, the higher the price, which for bonds means the lower the yield. So now what?

If Bernanke steps down when his term ends, his replacement could be Fed vice-chairwoman Janet Yellen. “I am worried that the approach that she and many others favor does over time allow the Fed’s anti-inflation credibility to erode,” said Alfred Broaddus, former president of the Federal Reserve Bank of Richmond. You can count me as “worried” too, to be kind.

My summer job when I was a kid was scooping ice cream at Oxford Creamery in Mattapoisett, Massachusetts. The price for a small cone, one scoop, was a quarter, two scoops 50 cents, and three scoops 75 cents. Today you’re lucky to take a family of four for less than 20 bucks. That’s inflation.

The Fed has a lot of heart saying inflation is under control. Where have they been the last 25 years? How about protecting the value of our dollars and calling it a day?

What’s scary about Ms. Yellen is that she not only believes that it’s the Fed’s job to control inflation, but also that it should manage employment. So the question becomes how much more Treasury bond buying and money printing will be going on under her leadership? Will she keep it going if inflation is still “under control” and unemployment is still above 6.5% in a couple of years? My guess? Yes, probably.

What should you do under Yellen’s leadership? I like the idea of investing in the types of companies we favor at Young Research. They are the huge, dividend-paying staples of the world economy. They’re not going away anytime soon.

Do yourself a favor and get away from companies that live or die by the sudden spikes in the stock market. Find the peace of mind and comfort you deserve. Because a sound, simple dollar policy is completely lost on the current operators at the Fed.

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.