3/30/2012 4:12 PM ET|
Visible on the horizon: Inflation
People are beginning to realize that the inflation joke is on them, with rising prices everywhere and deflation nowhere in sight. Plus: Words of wisdom on gold.
I have owned gold and gold-related investments aggressively since 2001 for one main reason: the mismanagement at the U.S. Federal Reserve, with its unplanned and unarticulated determination to debase our currency and promote inflation.
Though we have had long periods of apparent stability, since 1971 stability has really been the case only when Paul Volcker was Fed chairman and immediately after his tenure.
The money-printing at the root of our problems essentially intensified exponentially under Alan Greenspan, and now Ben Bernanke, fueled particularly over the past four or five years by worldwide fears of deflation. The irony, of course, is that the fear of deflation guarantees inflation as central banks are willing to use the printing press with reckless abandon.
I think it is highly probable that the fears of a deflationary accident have passed, so folks might be more receptive to signs of inflation, which would certainly change the landscape in many markets.
No substitute for common sense
In Canada, where the Consumer Price Index is perhaps slightly less sanitized than in the U.S., inflation was reported on March 23 to have accelerated again in February due to higher costs for gasoline, electricity and meat. I thought it was interesting that a Bloomberg story blamed those items, because here in inflation-denying America, we discuss inflation only ex food and energy. In fact, one could argue that the Fed and those who worship it like to look at inflation only after stripping it ("ex" stands for excluding) of anything that has gone higher in price.
Of course, many companies have been affected by higher inflation already, not the least of which is ConAgra (CAG). I liked The New York Times' rendition of the company's recently lowered outlook: "Like all food companies, ConAgra, the maker of Banquet frozen meals, Chef Boyardee pasta, and Hebrew National hot dogs, has been hurt by soaring costs for grain, meat, and fuel."
The Fed: Giving credit where credit is due
As everyone knows, the cost of almost everything you need has been rising for some time, while certain assets, such as real estate, have declined. (The prices of electronic consumer products have also declined, because that is what technology does: get cheaper). In any case, it should surprise no one when I say that the problem facing us prospectively will be inflation, not deflation.
The Fed is going to be very slow in accepting any responsibility for that, as it has a long history of denying its role in past disasters. Just witness Greenspan's denial of his sins, not to mention Bernanke's remarks during his so-called University Lecture on March 22: ". . . the evidence I have seen suggests that monetary policy did not play an important role in raising house prices during the upswing."
Someone who can reach that conclusion is going to be rather disinclined to take any blame for a rise in consumer prices. Of course, given the way the U.S. CPI is constructed, it is very difficult to get it to register higher prices in the first place. Thus, inflation will be raging wildly long before any attempt is made to stop it.
Naturally, that will affect the bond market, which will eventually take the printing press away from the Fed, and hopefully bring a happy ending to this horror story.
As for protecting yourself against the evils of inflation and currency debasement, this week I received a compelling email from a longtime friend and extremely successful professional investor. As a very smart guy with more than 40 years of experience in the investment world, his frank (even blunt) opinions are uncommonly valuable.
VIDEO ON MSN MONEY
The government has so many reasons to downplay inflation and few reasons to tell the truth. How can food and utilities be left out of the inflation number. We all need to eat, have light and heat plus use transportation whether our own or public transit.
Food had gone through the roof and shows no sign of going down. Gas and oil have gone up so much that all elements of the economy are negatively affected. Wages are stagnant and for those poor souls who save, interest rates are pathetically low. There is no incentive to save because there is no reward to save and money is needed to buy the bare necessities for today before the prices go up.
When inflation arrives it will appear overnight even though we have been experiencing it for a while through cost creep.
Imagine going to butcher to buy a pound of meat only to find out a pound weighs less than it did a week ago. You spend the same amount of money you did a week ago, but have to walk away with less meat.
Imagine you earn $10/hr working at your job and you show up to work one day and discover an "hour" is now 71 minutes. You spend more time working earning the same amount of money.
Imagine the federal reserve prints so much money the dollar you are holding today is worth less than it was last year and can buy only a fraction of what it used to.
Why are we so willing to accept the third result but call the first two "preposterous". It all has the exact same impact.
The dollar has lost 93% of its value since the establishment of the Federal Reserve in 1913. 85% since we moved off the gold standard. The most insidious form of taxation is inflation, hitting most those who can afford it the least. The real scary thing about where we are, it how fast we are falling with interest rates so low. Just want until they turn, and with the money supply M1 and M2 at heights never before seen, "bad" hasn't even begun.
Real inflation 8.1%, real unemployment at 16% that is called stagflation!!! Energy being a big part of this inflation and what has Obama or congress done. Nothing!!!!!! Vote the bastards out!!!
"As everyone knows, the cost of almost everything you need has been rising for some time, while certain assets, such as real estate, have declined. (The prices of electronic consumer products have also declined, because that is what technology does: get cheaper). In any case, it should surprise no one when I say that the problem facing us prospectively will be inflation, not deflation. """"""""""""""""" That is because the FED has no idea of what to do.
VISIBLE ON THE HORIZON: INFLATION - DUH!!!
I call this you can't see the forest for the trees !!!
Our Government has a big L on its forehead!!!
Gasoline. Almost 4.00 per gallon. Due to Obama pushed drilling restrictions, Obama rejection of refinery construction, Obama rejection of pipeline from Canada.
Food. Up 25% due to transportation cost increases due to Obama induced higher oil prices.
Food. Up 25% due to Obama push to use corn in oil in gasoline, creating a shortage of corn in the food industry. Now, bread prices are higher because wheat farmers are taking wheat out of production and planting in its place, corn, to take advantage of the higher corn prices.
Clothing. Up 25 to 30 % due to transportation cost increases caused by increased oil prices and by the increased price of petroleum that is used in synthetics.
Air and rail transportation. Up 25% due to Obama's push to restrict oil production ad processing.
Power tools and small appliances.10% to 30%. Due higher transportation costs and higher costs of plastics used in products.
Home furnishings. 10% to 30%. Due to higher transportation costs and higher cost of plastics and synthetic fabrics.
The list goes on. One thing is obvious. Most of the increases are directly attributed to Obama's occupation of the White House. Worse, if he gets a 2nd term, it may well be the ruin of the US as we have known it. He will force an agenda that no one, not even the actually working democrats, can swallow.
It is not gas that is driving inflation, it is inflation that is driving gas. ALL commodities are way up, many breaking records. That includes gold, cotton, coffee, copper, silver, etc. This is what happens when Obama devalues the dollar, it takes more dollars to buy the same item.
As the article said, Obama and Bernake are trying to inflate the economy, Limiting oil permits and public land drilling are part of that plan.
With the gas prices unjustifiably high, SOMEBODY is making out like a bandit...and it sure the hell isn't ME!!! A hour's work at the federal minimum wage should at least be able to buy five gallons of gas! It now barely buys TWO. And it's well on the way to buying only ONE! I am presently working a part-time job and it costs me 25% of a month's pay just to go to work and come back home again, and that's with a car that is very easy on gas!
The whole idea is to keep the working person constantly in hock and completely DESTROY the poor and middle class. Overpricing the fuel that takes us to our jobs, hauls our food, heats our homes, powers businesses and moves our economy forward is one sure-fire way to accomplish that agenda, and is low and downright wicked. And those behind it all simply don't care if this nation collapses completely around them because they'll still be living in opulence no matter WHAT happens while the rest of us suffer and/or die.
Or so they think...
Because when it finally gets down to rug-cutting time....the meek shall inherit the world!
Remember that it was the poor and middle class that built this great nation from the bottom up!
I am ANGERED about the fact we have anti-American sentiment coming from our elected officials and appointees in Washington D.C., as well as so many others that made their mark in this country and reaped incomprehensible rewards as a result, abandoning their roots and exhibiting behaviors that are as detrimental to America, if not worse than those coming from our adversaries overseas. Our elected officials and appointees love to preach that they are so much for the poor and middle class while they are at the same time the are making sure their fat-cat cronies are WELL taken care of while undermining the poor and middle class!!!
And get this...to have the audacity to debase our Constitution, the greatest governing document ever in the history of mankind...that "stands in President Obama's way" (which is what its authors designed it to do in order to prevent any of the branches of government from becoming too powerful) and believe it or not, was declared not good enough for Egypt to model theirs after...by Supreme Court justice Ruth Bader Ginsberg, who took an oath to uphold and fully believe in the US Constitution when she was appointed to the Supreme Court. She should be impeached!
Our nation is in the GUTTER and needs pulled out FAST!!!
Bernanke is still running the presses24/7, of course we have inflation
April of 2008 as soon as I saw we were going to elect a quasi socialist , either Clinton or Obama, I cashed out and bought gold, there it stays until Obama is gone.
This is how NO BAMA plans to pay the debt
Make the money worthless
He is attacking the poor people he says he wants to help
The will figure it out before November
One Term President
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