While the Federal Reserve’s monetary shenanigans may raise the ire of advocates of sound money and good economics, the institution has for the most part avoided the scandals that plague other Washington institutions. The thought of a Federal Reserve Bank President cavorting with an intern, or a Federal Reserve Chairman taking bribes seems ludicrously far-fetched. But a recent scandal surrounding two Federal Reserve Bank Presidents has garnered the Fed greater attention, and made many aware of just how Washington and Wall Street may be stacking the deck against ordinary investors.
While government regulators would like investors to think that investing in stocks and bonds is perfectly safe, and that investors can make great gains, the reality may be that the politically well-connected benefit before anyone else is able to, leaving Main Street investors with leftover scraps. The case of these two Fed Presidents, the stock trades they made, and the stock positions they held, has angered many people who advocate for free and fair markets.
And while the two gentlemen have pledged to divest themselves of individual stocks, you have to wonder how they were able to retain such investment holdings given the important positions they held. Will their example provide some impetus for reform, or will Washington and Wall Street continue to favor themselves at the expense of ordinary investors?
Two Fed Presidents and the Appearance of Scandal
The two Fed Presidents involved were Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan. Both of them engaged in regular stock trades last year, with Kaplan in particular engaging in multiple trades of over $1 million. Kaplan held over two dozen individual stocks, each of them with over $1 million in holdings.
While both Kaplan and Rosengren said that they tried to avoid even the appearance of impropriety, the fact is that they are among those who decide the direction of monetary policy. And since current Federal Reserve monetary policy has caused stocks to shoot to the moon, both Kaplan and Rosengren benefited directly from the results of the policies they implemented, policies which they as the deciders had advanced knowledge of.
The implications of this bombshell are massive, yet neither Kaplan nor Rosengren seem to be facing any fallouts or accusations of lapse of ethics, at least not from within the Fed. It’s only those of us on the outside who fume at the obvious bias and self-interest involved here.
Both Kaplan and Rosengren have promised to divest themselves of individual stocks and to either hold cash or invest in passive investments. The timing just happens to be right, too, with stocks at all-time highs. With the Fed set to taper asset purchases in the coming months, there’s a very real chance that Kaplan and Rosengren are selling at the top, missing out on big future losses. How convenient.
Is This Behavior Normal?
What this example highlights is the fact that the Washington and Wall Street elites operate on a different playing field than the rest of us. They’re making the decisions that move markets and have inside information that the rest of us don’t. Even if they try to avoid the appearance of impropriety, they still have knowledge of future actions that the rest of us don’t, enabling them to trade at an advantage to everyone else.
These elites also often have access to trades that ordinary investors don’t have. For most of us, saving through IRAs or 401(k)s, when we put in a trade order it might not get carried out until after the close of the trading day, or if you put an order in after noon, after the close of the next trading day. So you can forget about reacting to news that might move markets. By the time your trade gets put in, markets will have already moved up or down, and you will be lucky to make gains or avoid losses.
Compare that to Washington and Wall Street elites, who know how the system works and may have access to trading platforms that the hoi polloi don’t. When they put in an order to buy or sell, it doesn’t take 24-48 hours to go through. Heck, it might not even take 24-48 minutes. Once you’re part of that elite club that has that kind of access, your ability to make money through stock investments can be improved dramatically.
The rest of us on Main Street have to be content with the scraps that are left. To some extent that means we’re relying on luck to make our gains. At the very least, even if we are able to make gains, they aren’t going to be as great as those who are well-connected.
But just because you don’t have access to the latest, greatest trading platform doesn’t mean that you can’t get ahead in investing. It just means that you may have to think outside the box.
Use Gold to Your Advantage
While the focus of most investors is on stocks, bonds, and other financial assets, fewer pay attention to alternative assets such as precious metals. But that means they could miss out on opportunities to build wealth in the future.
We’re headed into a time in which the economy could weaken substantially, and in which precious metals could see significant price growth. And that means that precious metals like gold and silver could be a much more attractive investment option for many people.
Gold and silver have a history of making good gains while stock markets flounder. During the 1970s, for instance, gold and silver averaged 30% annualized growth over the course of the decade. And in the aftermath of the 2008 crisis, gold nearly tripled while silver more than quintupled.
Let the Fed Presidents have their big stock holdings if they want. Once stock markets fall into correction, those holdings are going to lose value, while gold and silver could likely grow in value. So even if the deck is stacked against you now, it isn’t necessarily always going to be that way.
Beating the insiders is going to require thinking outside the box and not playing according to the rules they try to set up for you. And that’s precisely where gold and silver come into play.
Whether you invest in gold and silver through a gold IRA or silver IRA or just buy gold coins or bars to store at home, owning precious metals can help diversify your portfolio and help you achieve growth during a weak economy.
With over a decade of experience helping thousands of investors just like you benefit from gold and silver, Goldco can help you navigate the world of precious metals. Give our precious metals experts a call today, and start benefiting from gold and silver.