Mozilo and Dodd Got Bernanke to do the Wrong thing - Now How do I save myself wealth

I couldn't believe that Mozilo and Dodd were pushing so hard for a large rate cut. Going in to the Fed's decision, it seemed certain to me that Bernanke would stick to his principles and continue to fight an elevated risk of inflation caused by higher energy costs. He didn't stick to his principles and now I think that we are going to pay a heavy price.

Angelo Mozilo has his own agenda.  That is to save Countrywide.  While I would not be surprised to see the stock trend much lower in the coming months, I suspect that he will ultimately be successful.  If nothing else, it seems that the rest of the financial industry has too much of a vested interest in seeing Countrywide survive for it to fail.

Chris Dodd also has his own agenda.  That is to become President.  I can't see any way in hell that he will ultimately be successful, but that is beside the point.

In the days and weeks leading up the Federal Reserve's September 18 decision on interest rates, both took advantage of every opportunity to speak to the media and even used direct access to Ben Bernanke to advocate that the Federal Reserve move dramatically to cut interest rates.  As a longtime follower of Bernanke and reader of his publications, it seemed to me that he would hold tight to his principles and maintain interest rates in order to guard against a risk of inflation which is especially elevated in light of higher oil prices.  Bernanke shocked me by moving to lower interest rates by 50 basis points.

While I find the title of this article highly offensive and inappropriate, I agree that Bernanke has not only moved against his principles, but has created tremendous risk to the US economy, especially as we have seen oil move still higher.  I certainly am not a libertarian and would not agree with the entire view of Ron Paul, but I do agree with him that there is a risk of damage to all Americans when rates are held artificially low by the Federal Reserve.  

The market now seems to be pricing in the likelihood of another 50 basis point lowering before the end of the year.  I hope that Bernanke resists the temptation to do that, but fear that he might now that he has already changed Fed policy.

So, against what I view as very real risks of a recession compounded by inflation, how do I save myself wealth?

I am considering these alternatives:

1) Real estate - Makes sense in general, but is still closer to being part of the problem that the solution.  I'll buy in 2 years as this runs in long cycles.

2) Cash and Cash equivalents discussed on - As inflation becomes apparent and as rates continue to fall, these will not protect the real value of my current savings. Cash accounts will be especially ineffective at protecting the real value of my current savings if the Fed cuts again.

3) Commodities - These have done well for those who got in earlier, but may not continue to show the same performance.  I fear that commodities, especially gold and silver, always take the elevator down.  Also, all commodities will fall when our problems catch up with emerging markets, and they will.

4) Foreign currency - In light of the strength in the Euro and the pound, I fear that I would be jumping into a crowded trade and that I missed this as well.  The Japanese Yen may make sense.  With all currencies, there is the very real possibility that central bankers will take to following the course of the US in trying to devalue their currencies to save manufacturing.

5) Stocks - I am not going to go near the banks or anything related to the consumer if a recession is coming.  However, US technology and pharma stocks are interesting here.  While they have had quite a run, I expect them to show another bump in earnings when they report in October as a result of the USD's fall.  I also expect them to go up at the end of the year as hedge funds try to levitate the market which they do every year. 

I am not excited about buying into the stock market here.  I don't think that I am getting any bargains.  But, I need to buy technology and pharma stocks now more than ever, just to try to save myself wealth.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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