E94

The US Federal Reserve is being short-sighted. It can be argued both ways that this is actually good or bad. But it doesn’t really matter. He works for the Obama Administration and he wants to get re-elected in 2012. That will cause Ben Bernanke to lean a certain way, to be a little short-sighted. If you’re looking for the best stocks to invest in for this environment, you should know what’s going on, really.

First of all, realize that Ben needs to get unemployment back to reasonable levels. That is going to be the major thing driving the 2012 presidential elections. But also know that there is a risk to what he is doing.

By creating tons of liquidity, i.e. printing money, he is putting the country at risk for inflation. This inflation may already be happening. What’s not clear is why. It’s not yet clear that it’s Ben’s QE’s that are causing it. It may be the hedge fund traders on the commodities market that’s causing it.

All of this money printing is going to lead to inflation.  That means in you will ultimately get a lower return on your investments in stocks.  If stocks rise 10%, partly due to the QE efforts, and inflation rises 6%, again due to QE efforts, you have basically cancelled out the returns.

That is why so many people are investing in gold, because they think that it is a hedge against inflation.  Those who are beginner investors think that this is automatic.  It is not.  Gold could be in as much of a bubble as tech stocks were back in the late 1990′s.

At the end of the day, the Fed will continue to print money even though it is not good for the long term health of the economy.  That is because liquidity causes the stock market to go up, and that is where the true political benefits lie.