The Federal Reserve has continued to promise growth just over the horizon on the false belief that record low interest rates and quantitative easing can bring the economy back to health.  In fact, at Ben Bernanke’s final meeting as Federal Reserve chairman in February, the Committee was optimistic about the recovery, stating that they “expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace and the unemployment rate will gradually decline.”

Dissecting the 1^st quarter numbers, GDP declined by approximately $350 billion.  Even the $195 billion of quantitative easing during the first quarter couldn’t boost the economy (not that we thought it would)!  We believe we are getting closer to a point where papering-over a broken system will be harder to disguise for policy makers.

Following our view of recession first and inflation later, bond yields have hit new lows on the year, with the 10-year treasury now at 2.4%.  However, stock markets remain dangerously complacent.  We foresee the potential for another wave down in equity markets that will lay the foundation for new rounds of money printing around the world.  Hunker down now, but be fearful of inflation in the years ahead as printing money is increasingly an act of desperation.

Source:  Bureau of Economic Analysis