Don't be Fooled
by This Old Trick By Chad Shoop, Investment Analyst Dear Sovereign Investor, It's one of the oldest tricks in the book.
Magicians have been using smoke and mirrors to take advantage of gullible citizens for hundreds of years.
I have been to Vegas and paid for it firsthand. At least in Vegas, I knew I was paying for a show that was designed to keep me in the dark.
But there is actually a much larger magic trick happening as we speak, and investors are still looking at the smoke while missing the action behind the mirrors … Advertisement
 As we conclude the first quarter of Janet Yellen's four-year term as Chair of the Federal Reserve, if there is one thing you have heard about her, it is most definitely her "six-month" gaffe.
But I am going to warn you now, that was just smoke; the real magic is happening right before your eyes. What Janet Yellen Wanted You to Focus On The key to the smoke-and-mirrors trick is to divert attention. Create a diversion in one hand, while the actual trick is happening in the other.
At Janet Yellen's first press conference as Fed Chair, she did just that.
She essentially created a giant ball of fire and smoke with her "six-month" comment, guiding analysts to believe there will be an interest-rate hike coming around next April. Yellen wants everyone focused on the idea that rates are headed higher soon.
That's the smoke — and it is completely irrelevant.
Jeff caught on right away and pointed it out in an article only a few days after her comment. The main question isn't when the Fed will raise rates, it's "to what degree can the Fed afford to raise rates."
Jeff went on to make several remarkable points but this sentence from the article sums it all up: Fed governors will pursue whatever extraordinary, untested, extreme measures are necessary to keep a ceiling on rates, no matter how distorted the markets become … because the alternative is the collapse of everything you and I know as normal in America. The collapse is our Federal government crumbling under debt payments it would not be able to afford with higher interest rates. Simply put, low rates keep America's lights on. Higher rates will make it increasingly harder for an already debt-addled government to afford its out-of-control lifestyle.
But this comment is exactly what Yellen wanted everyone to hang on to, while she is shifting things around, setting up the real trick in the background. Where the Real Magic is Happening Jeff is exactly right. The Fed is prepared to use whatever untested and extreme measures are necessary to keep a ceiling on these rates, something Janet Yellen is keeping up her sleeve.
But it doesn't mean she isn't already opening the door for these new policy measures.
She hasn't had time to do much — we are only one quarter into her term — but in her first meeting as Fed Chair she managed to begin dismantling years of Federal Reserve transparency, which is allowing her to explain less when it's time to adjust policy.
She did this in a few ways in her first actions as Fed Chair.
First, Yellen removed the 6.5% unemployment target. That leaves analysts with absolutely no guideline on employment. We don't know what Yellen considers "full employment" if it's not based on the unemployment rate. Mind you, the language that Ben Bernanke used would still keep the fed funds rate at lower levels than normal well past the time it reached this target — we just knew what his target was.
Second, she added that "the Committee will assess progress — both realized and expected" toward its goals. By adding this language to Federal Reserve policy, Yellen reduced transparency and broadened her options to gauge Fed policy.
The core of the problem is that the Fed simply cannot allow interest rates to move up much at all. Sure, rates will inch higher because the Fed is taking away some stimulus as it scales back its monthly bond buying. But Yellen and her cohorts know they cannot allow the pain in D.C. to become too intense. Otherwise they risk a meltdown that could destroy the economy and take down the dollar.
As a result, the main casualty of her actions will be investors looking for yield in the form of Treasurys and bank CDs. It's why Jeff stated in January 2012 that we are now in the Decade of Yield. He continues to counsel his readers to load up on high-quality, high-yielding stocks around the globe. They're the only way to generate any real income from portfolios today.
Don't be transfixed by a random comment that turns out to be virtually irrelevant. Instead, be prepared for even more untested and extreme measures out of Janet Yellen's Federal Reserve. She's only warming up for her grand magic trick — and she wants to make sure you and I are her "gullible" audience. Regards,
Chad Shoop
Investment Analyst P.S. The Fed isn't the only one determined to keep its secrets. There's a secret in the Obama administration that is poised to cause a massive upheaval in the U.S. economy. To learn more about the information uncovered in a little-known government document, click here. | 
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