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How "Minuteman" Warren Buffett is Leading America's New "War of Independence"

In our Aug. 11 Private Briefing report What Does This “Mysterious Signal” Tell Us About CB&I? we said we suspected that super-investor Warren Buffett would use the sell-off in Chicago Bridge & Iron NV (NYSE: CBI) to boost his stake in the this Netherlands-based infrastructure specialist.

And that’s just what happened…

  • Federal Reserve

  • Not Much of a Debate: Inflation is Part of the Plan Forget about lost decades. Forecasts that we'll be turning Japanese couldn't be further from the truth.

    Here's why.

    It's simple, really. Deflation is not in the interest of anybody in power, so it's very unlikely to happen.

    The U.S. Federal Reserve's policy move to target inflation last week just re-emphasizes this point.

    That's not to say deflation is a bad thing for everybody.

    For savers and those living on fixed incomes, deflation would be a very good thing indeed.

    Their income would gradually increase in real terms, and their savings would become steadily more valuable. Holders of Treasury bonds would also gain mightily from deflation.

    However, the very people who would gain from deflation are not in power.

    The People's Bank of China can't vote in the U.S. (yet!), Ron Paul is not president, and there is not an organized and powerful savers' political movement. After all, this is not Germany or Japan!

    Meanwhile, in the real world, the U.S. government is spending far more than it takes in, and its debt is rising to dangerous levels. This has been happening on a bipartisan basis since at least 2001.

    The Tea Party may have elected a Congress committed to reducing spending, but none of the battles of 2011 actually reduced spending - they just slowed the rate of growth somewhat.

    Since much of the debt is borrowed long-term at low interest rates, the best way to reduce its burden on future generations is to encourage inflation.

    Savers may lose out on the deal, but to those in Washington, the idea of inflating our way out of debt is irresistible.

    Of course, sometimes we can depend on an independent central bank to resist this temptation. But at present, Fed Chairman Ben Bernanke is committed to near-zero interest rates in his fight against deflation.

    Now you don't have to be a conspiracy theorist to realize that, if the power structure is committed to at least moderate inflation, inflation is what you are going to get.

    In fact, it is already brewing.

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  • How Presidential Candidate Ron Paul's Campaign Could End the Fed Led by presidential candidate Ron Paul's "end the Fed" mantra, Republicans have made their attacks on the U.S. Federal Reserve into an election year rallying cry.

    It's one that could turn ugly in November if the GOP manages to score big.

    Where Paul has been the lone voice in the wilderness criticizing the central bank for years, others in the GOP recently adopted the Fed as a scapegoat for the financial crisis of 2008.

    Many of the Republican attacks include calls to fire Fed Chairman Ben S. Bernanke and to scale back the Fed's mandate - or in Paul's case, eradicate it altogether.

    And while Paul - who actually wrote a book called "End the Fed" in 2008 - has little chance of becoming the nominee, his campaign does have a larger philosophical objective.

    "It is Paul's goal to permanently establish within the Republican Party a group that is dead set on not having the Fed," Douglas Holtz-Eakin, chief economic adviser to Sen. John McCain, R-AZ, during his 2008 run for the presidency,told MarketWatch. "This is not going away."


    Ron Paul Scores Big With Younger Voters

    Although Paul's overall support generally hovers in the low double digits, his message is very popular among younger Republican voters.

    Paul won 48% of the under-30 vote in Iowa, 47% of the under-30 vote in New Hampshire and 31% in South Carolina. It's a demographic every candidate covets.

    Paul's resonance with young voters, combined with the public's dim view of the Fed has set off an all-out GOP assault on the central bank.

    For added juice, Republicans in general have sought to tie their criticisms of the Fed to U.S. President Barack Obama and the Democrats.

    "If you are a [Republican] running for Congress - those freshmen in the House - they thought that Bernanke was walking around talking about buying assets for Obama to make it easier for him to spend," Holtz-Eakin told MarketWatch. "It lit the fuse."

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  • Another Bernanke Market Rally U.S. Federal Reserve Chairman Ben Bernanke delivered a weak U.S. economic outlook this week, triggering speculation that the Fed will be warming the printing presses and injecting more money into the economy. The anticipation has caused a market chain reaction for the dollar, gold, and energy-related investments. Check out what Keith Fitz-Gerald had to say to investors about the market moves when he joined Fox Business' "Varney & Co." program Wednesday morning.

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  • What's Different About this Week's FOMC Meeting The two-day Federal Open Market Committee (FOMC) meeting starting today (Tuesday) marks a historic shift in how the U.S. Federal Reserve communicates its policy decisions with the public.

    The changes center on disclosing individual FOMC members' interest-rate forecasts and economic projections. It may also release an agreed target for inflation.

    "It's a significant innovation," Jeremy Lawson, chief U.S. economist for BNP Paribas, told Reuters. "It will change the interaction between the Fed and the markets and the way people think about how the Fed is likely to behave."

    The main question will be if... Read More...
  • The One Question We Must All Ask Ourselves Rampant profiteering by Congress and greedy bankers is forcing us to weigh the slings and arrows of outrageous fortune against honesty and transparency - both of which are being trampled by crony capitalists in pursuit of the almighty dollar.

    What's at stake is whether gross criminal activity and reckless disregard for the public will continue to be whitewashed by regulators like the Securities and Exchange Commission (SEC), the U.S. Federal Reserve, courts, and Congress, which encourage half-baked civil fraud charges followed by non-prosecution agreements and nickel-and-dime fines.

    And even more galling, guilty parties end up neither admitting nor denying wrongdoing.

    Let's face it, we have allowed the SEC, the Fed, and Congress to be corralled as a matter of regulatory and legislative capture by the very crooks they are responsible for policing and protecting us from.

    We are lying to ourselves if we do not believe that we are all part of this problem. It's not that most of us aren't honest. It's that we venerate money and wealth too much.

    Rather than being disgusted by dishonest manipulators, liars and cheats, we excuse the less-than-obvious perpetrators as if their example of cutting corners to get ahead, as far ahead as possible, might clear a path for some of our own pursuits.

    What have we become? Are we a nation of people with liberty and justice for all, or just a bunch of money grabbers stepping on each other's liberties to pursue self-centered happiness by becoming filthy rich?

    Don't get me wrong. There's nothing wrong with the profit motive driving business. And there's nothing wrong with working hard and trying to make a lot of money. Those are honorable pursuits.

    President Calvin Coolidge said: "The chief business of the American people is business."

    But in the same speech made on January 17, 1925 our 30th president went on to say: "Of course the accumulation of wealth cannot be justified as the chief end of existence."

    Tragically, the fountainhead of greed in America emanates from our own Congress. It has become obvious that the accumulation of personal wealth is their primary civic duty.

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  • Out of Answers, Federal Reserve Can Only Offer Empty Rhetoric The Federal Open Market Committee (FOMC) is scheduled to issue a statement at 2:15 pm. today (Tuesday), but don't expect anything other than more empty rhetoric.

    Indeed, with few options remaining, the Fed is expected to produce little more than a statement designed to reassure the markets following today's meeting.

    "If the Fed were smart, they would use this meeting to take decisive action," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "Sadly, though, I think they'll lay low and issue yet more hollow statements filled with information that at this point constitutes less than fluff."

    At this point, few bullets remain in the Fed's chamber; interest rates have been near-zero for almost three years, and two programs of "quantitative easing" over the past two years have pumped $2.3 trillion into the U.S. economy.

    In an attempt to show it was doing something to help the economy, the central bank said last summer that it would maintain rates at that level until mid-2013.

    And while the Federal Reserve is not expected to announce immediate plans for more quantitative easing - QE3 - many believe some sort of accommodation, probably directed at the housing market, is coming next year.

    "There is a 75% chance the Fed will buy mortgage-backed securities in the first half of the year, possibly by January," Lou Crandall, chief economist at Wrightson ICAP LLC, told MarketWatch.

    A series of relatively positive economic reports in recent weeks - unemployment recently dropped to 8.6%, while consumer spending and manufacturing have edged upward - has eased the pressure on the Fed to take any more action this year.

    As part of its strategy to maintain optimism in the markets, the FOMC will likely promise to pump more money into the U.S. economy at some point next year.

    "The numbers are getting better, but not enough to keep [the FOMC] complacent," Crandalltold MarketWatch.

    Word Games

    Recognizing that its options are limited, the Federal Reserve instead will focus today on the one thing it can provide in near-limitless supply - words. Today's meeting is expected to focus on a new communications strategy that will offer more details on the Fed's goals for inflation and unemployment - its dual mandate - and how it plans to meet them.

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  • Jim Rogers: "The Fed is Lying to Us" Despite statements to the contrary, the U.S. Federal Reserve has continued to pump money into the economy, says investing legend Jim Rogers.

    The resulting low interest rates and creeping inflation, he says, are destroying the wealth of millions.

    "[Federal Reserve Chairman Ben] Bernanke said last August he was keeping interest rates artificially low," Rogers told Yahoo! Financeon Tuesday. "The only way you can do that is to go into the market."

    As proof, Rogers pointed to the rise in the broad M2 measure of the U.S. money supply, which has increased more than 5% since the Fed's second quantitative easing program (QE2) ended on June 30, and 20% since November 2008.

    "Since August - well, this whole year - the M2 has jumped up," Rogers said. "They're in the market. They're lying to us."

    A well-known critic of the Fed who has called for it to be abolished, Rogers warned that the central bank's policies would lead to disaster.

    "Right now what the Federal Reserve is doing is ruining an entire class of people in America," Rogers said. "The people who saved and invested for the past 10, 20, 30 years are now being ruined because interest rates are [too] low."

    He added that if he were Fed chairman, he'd raise interest rates to slow down inflation.

    In a separate interview with The Streetyesterday (Wednesday), Rogers said he considered the Fed to be the greatest risk to the U.S. economy in 2012.

    "They don't seem to understand economics or finance or currencies or much of anything else except printing money," Rogers said.

    Painful Remedies

    The other major concern that Rogers has is the soaring federal debt, which recently passed $15 trillion.

    "We are the largest debtor nation in the history of the world and the debts are going higher and higher by trillions, every two or three years," Rogers said. "We're all paying the price for it. And wait till 2013 - we're really going to pay the price."

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  • Money Morning's Gilani Shares What Japan's Disaster Could Mean for U.S. Markets Money Morning Contributing Editor Shah Gilani joined FoxBusiness' "Varney & Co." Monday morning to answer one of investors' biggest questions: Is Japan's disaster a signal to run from U.S. markets?

    Gilani explains what investors could see in the next few days, if now's the time to sell and what moves U.S. Federal Reserve Chairman Ben S. Bernanke might make to prevent an economic slowdown.

    His succinct analysis yet again prompted praise from show host Stuart Varney: "Shah Gilani, you keep it short and to the point and we just... Read More...
  • What the Looming Inflation Tsunami Means for the U.S. Housing Market and Commodities A few weeks ago, Money Morning Contributing Editor Martin Hutchinson warned readers about the looming inflation tsunami threatening the United States.

    Easy money policies like those of the U.S. Federal Reserve and other central banks have helped raise prices in emerging markets, as well as the United States, and sent the commodities sector surging.

    "[W]e can expect inflation to be with us for several years, too," said Hutchinson. "In fact, expect it to get worse for the next three to four years, while Ben S. Bernanke remains at the helm of the nation's central bank."

    As inflation threatens to eat away at the value of stocks and bonds and cut into investors' returns, Hutchinson said one of the best investments to make ahead of rising prices actually is a house.

    The housing market is at or near its bottom and rates on 30-year mortgages are desirable for buyers. Investors who find the right neighborhood, strike a good deal and don't financially overextend themselves could find a sound housing investment as the best store for their money.

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  • Why the Federal Reserve's Quantitative Easing Strategy Won't Save the US Economy With a second round of "quantitative easing" underway, the U.S. Federal Reserve wants us to believe that it is doing its duty as the nation's central bank – promoting maximum employment, keeping a lid on inflation and making sure that long-term interest rates remain at reasonable levels.

    This is known as the Fed's "dual mandate," since the inflation and interest-rate objectives are really the same goal.

    But here's a shocker: The Federal Reserve's real dual mandate is to enrich the banks the central bank is created by and works for – and to cover Congress when its laws enrich banks at the expense of jobless American taxpayers.

    Understanding how quantitative easing works is simple. Understanding how banks and Congress are manipulating this economic tool is just a tad more complicated. Understanding how quantitative easing will impact your life – and your financial future – is just a matter of understanding the facts

    For additional insights on the Fed's true workings, please read on... Read More...
  • Fed's Easing Spurs Treasury Purchases as Banks Shun Lending  Despite the U.S. Federal Reserve's efforts to spur lending by keeping interest rates low and pumping up liquidity with quantitative easing, banks continue to borrow from the government at low rates and reinvest the funds into higher-yielding Treasury bonds.

    U.S. commercial banks are buying the most Treasury and agency debt since the Fed began tracking the data in 1950, adding $186.2 billion to their inventories through Oct. 20 bringing the total to $1.62 trillion. At the same time, commercial and industrial loans outstanding have fallen by about $68.5 billion this year to $1.23 trillion, according to central bank data compiled by Bloomberg News.

    By tying up their capital in government securities, banks make it more difficult for small businesses to get loans and create jobs, which discourages consumer spending.

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  • Republican Victory and Fed Easing Means It's Time to Shift From Commodities to U.S. Stocks The U.S. economic and investment world has changed fundamentally in the last 48 hours from two key events:

    • The massive Republican victory in Tuesday's midterm elections.
    • And the $600 billion worth of bond purchases by the U.S. Federal Reserve.
    These two events have changed the trajectory of the U.S. economy, probably for the next two years.

    As investors, we'd better adapt to them - and fast.

    For specific investment moves to make, please read on... Read More...
  • Fed's "QE2" Could Fuel Inflation in U.S. & Deflation in Europe The U. S. Federal Reserve's latest round of quantitative easing (QE2) may further escalate the currency war by producing a crippling bout of deflation in Europe and conversely, another period of inflation on the domestic front.

    The diverse results are possible because further Fed purchases of debt are likely to re-ignite economic growth and increase prices in the United States, while a surging Euro will make it more difficult for European countries to pay off debt.

    Fed purchases of Treasuries to stimulate the U.S. economy could send the euro rising against the dollar, sparking deflation in Europe, Nobel Prize-winning economist Robert Mundell told Bloomberg News.

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  • What to Expect from the Federal Reserve's Next Round of Quantitative Easing The U.S. Federal Reserve today (Wednesday) is all but certain to announce a second round of quantitative easing - "QE2."

    Most analysts believe the Fed will pledge to buy another $500 billion in U.S. Treasuries, but I think it will go even further. My expectation is that $500 billion in Treasury purchases over six months will be just a first step, and that the full amount contemplated - as much as $2 trillion - is much larger than consensus.

    This view is based on an analysis by Goldman Sachs Group Inc. (NYSE: GS) chief domestic economist Jan Hatzius that suggests current interest rates, at 0% to 0.25%, are 700 basis points too high. In plain English, the Goldman analysis suggests that interest rates would have to be -7% to achieve the Fed's goals.

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  • Slow GDP Growth Sets Stage for Fed's Next Round of Quantitative Easing The U.S. economy continued to struggle to grow in the third quarter, most likely giving government officials enough cover to pump more liquidity into the financial system to stimulate hiring.

    Gross domestic product (GDP), the value of all goods and services produced, increased by 2% in the third quarter, the Commerce Department reported Friday. Economists polled by Dow Jones Newswires were expecting GDP to rise by 2.1% in the July to September period, The Wall Street Journal reported.

    The gain was slightly more than the second quarter's 1.7% growth but not enough to revive a moribund job market, according to most economists.

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