Posts Tagged ‘Double Dip’

Inflation for certain … hyperinflation?

In the past, before the Clinton years, we had an inflation valuation that included such things as food and fuel.

Not so now, the Consumer Price Index has been so manipulated and had core items like food and fuel taken out of it that it has become a useless measure.

Unless you are living in a cave or under a rock or do not have any need for gasoline you will have noticed an ongoing upward trend in gasoline prices.  Nothing so amply shows this than the graph here.

The trend line is unmistakeable, keep in mind this is a GROWTH, year over year.  Since this time last year there has NEVER been a time without a price INCREASE.  Moreover since the start of the year the rate of INCREASE has been INCREASING.

Even the core CPI is calling for an inflation rate of a modest 1.33%, however when taken for the whole year, this increase will exceed the target 2%.  When food and fuel are counted, the rate is more like 3.2% and has a year end projected figure close to 6%.  This means a definite inflation trend.

Hyperinflation becomes visible when there is an unchecked increase in the money supply (see hyperinflation in Zimbabwe) usually accompanied by a widespread unwillingness on the part of the local population to hold the hyperinflationary money for more than the time needed to trade it for something non-monetary to avoid further loss of real value. Hyperinflation is often associated with wars (or their aftermath), currency meltdowns, political or social upheavals, or aggressive bidding on currency exchanges.

Lets quickly examine the associations:

  • Wars – yes at least two that the US is actively engaged in: Iraq & Afghanistan
  • Currency Meltdowns: the world is still struggling with the meltdown of 2008
  • Political or Social upheavals: the Arab spring certainly fits that notion, moreover there have been signs of ongoing division withing the US electorate since the Supreme Court decided who was to be President in 2000.
  • Aggressive Bidding on Currency Exchanges: less clear here, as the T-Bills of the FED are basically being purchased by the FED or proxy of the FED by banks associated to the FED

So most of the trend points needed to have hyperinflation exist, what remains to be seen is if the powers that be in Washington can overcome the force of history and the K-wave Winter that is overdue.

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Welcome to the top of the ride … all downhill from here.

There is an adage in the market that says,

“Sell in May and walk away.”

Well, there are many leading indicators that are now pointing DOWN, way down.

From the Treasury Market Inflation Forecast to the Economic Cycle Research Institute’s (ECRI) Long Leading Index of global industrial growth, these indicators are showing that the “W” of recovery is more likely.

Given that the US housing market has not rebounded as was once hoped, that the QE and QEII have only resulted in a short term bull rally in the stock market and a temporary easing of short term bond rates and not the much touted employment that the bankers and others from Wall Street and DC were promising was ‘on the way’.  Indeed employment numbers are stalled, much like the sense one has in a roller coaster car just as you reach the top of the first ‘hill’ after being released from the lift chains.  We have had a drop and a ‘scare’ now the real ride begins.

Richard Russell, 86-year old author of the Dow Theory Letters commented as follows on the deteriorating market breadth: “This is a bearish picture. The ‘soldiers’ are deserting even while the ‘generals’ continue to march forward. In a war, this would be a prelude to disaster. In the stock market, it may be the same.”

I agree with that sentiment and add in argument that the broader market place is going to go into a panic situation, this summer will be pleasant enough, like the roller coaster car moving gently along the top of the rail in a near flat grade.  By this autumn?  Well Kondratieff Winter will blow in for real with a storm to remember …

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Correction only in Silver, this is not over at all

The recent pull-back in Silver has prompted some to begin speaking about the ‘end’ of the run in silver and gold.

While a risk of a prolonged pull-back (and by this I mean a few months) is a potential in the market the long-term fundamentals remain the same.

In the attached video Gold& Silver operator speaks about these fundamentals.

If you are still not convinced, try calling up anyone in Argentina that survived (or thrived) in that marketplace after the total default on sovereign debt…

Then ask yourself,

“What are the options for the way out of the situation for the US Federal government in the debt ceiling situation?”

Get ready for a wild summer.

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