Fed Funds Rate vs. Metals

See Fed Funds Rate vs. Commodities for a description of what this chart means and to compare against a similar chart.

There are a quite a few changes in this chart.

1. The time frame goes from 1955 to 1998. This adds more data from a previous period and removes the data from the most recent bull run in commodities.
2. Gold has been removed since it was fixed in price during some of that period.
3. Oil was removed because it isn't a metal.

You might note that although the correlation is exceedingly weak, the trend line continues to hold. A low real rate of return on the Fed Funds rate appears to be explosive for commodities (in general). Further, should I go back even further the Great Depression was the just the opposite. The real rate of return on cash stuffed in mattresses (no interest rate) was spectacular. Prices fell and commodities were most certainly not immune.

This is why I continue to argue that the real return you earn on your cash is an extremely important consideration when trying to decide if you should hoard hard assets.

So what does that mean we should do to protect ourselves? No easy answer!

1. If you believe that inflation will rise but interest rates won't, then hoard hard assets.
2. If you believe that we're heading into a deflationary collapse brought on by the housing bubble, then stop hoarding hard assets.
3. If you believe that oil production is peaking and the world will soon face oil shortages, then hoard hard assets.
4. If you believe that cheap and easy credit led to an unsustainable bubble in real estate, commodities, oil, and possibly even China, then stop hoarding hard assets.
5. If you believe that the world is awash or will be awash in freshly printed cash, then hoard hard assets.
6. If you believe China is sowing the seeds of recreating our last Great Depression, then stop hoarding assets.
7. If you believe everything you read on the gold bullion sales' sites, then hoard hard assets.
8. If you believe everything you read on Kudlow's website, then stop hoarding hard assets.
9. If you believe billions of people will soon have our standard of living, then hoard hard assets.
10. If you believe that billions of people are not going to be driving cars soon, then stop hoarding hard assets.
11. If you believe our massive trade deficit reminds you of a banana republic, then hoard hard assets.
12. If you believe that Bernanke's a hawk in dove's clothing, then stop hoarding hard assets.

Doesn't that make it easy! Well, then again, maybe not.

Oh yeah, and this is most certainly not investment advice. In fact, if you know the answers to ALL these "if" questions (and many more!) you are doing FAR better than me. In the meantime, I'll be waiting over here on the sidelines.