Gas prices are just the beginning
New data shows serious inflation is coming. With wages stagnant, that's terrible news for the economy.
Change is in the air. Over the last few months, the economic data has been consistently surprising to the upside thanks to temporary drivers like shoppers dipping into their savings and businesses restocking inventories, helping power stocks higher. This, in turn, has boosted consumer and business confidence back to recovery highs -- levels not seen since last summer.
Now, "hard data" based on output and activity, not survey forms, is confirming my pessimistic outlook. The main culprit: Rising prices, especially on crude oil (nearing highs seen last spring) and gasoline (up nearly 40% since November). What makes higher inflation so dangerous is that not only does it tie the hands of the Federal Reserve and other central banks -- who have almost single handedly engineered the post-November market rally -- but it will pressure consumer spending.
That sets the stage for pitiful GDP growth in the months to come, something investors are just beginning to prepare for. Here's why.
Just look at the data released this week. On Tuesday, it was reported the consumer confidence index jumped well over expectations to 70.8 (vs. consensus estimate of 64 and prior month 61.5) thanks to a positive jobs outlook.
But then today, we learn that for the second month out of the last three that inflation-adjusted wages actually fell on a year-over-year basis. That hasn't happened before in a non-recession environment. And it represents serious pressure on shoppers trying to rebuild savings accounts after splurging on holiday shopping.
This is happening as the massive monetary injections by the central bankers are pushing prices higher and higher yet are doing little to encourage real, sustainable economic growth. The unemployment rate is falling because people are giving up looking for work. And those that are finding jobs are largely finding temporary, low-wage, no-benefit, part-time positions.
Real measures of the labor market, such as the percentage of the population in full-time employment, has returned to recessionary lows.
The inflation problem is increasingly global. And it's about to get worse. (For more on inflation, and how the Federal Reserve is causing it, be sure to check out my column this week here.)
That's the takeaway from today's ISM manufacturing report. Its priced paid sub-index jumped to 61.5, up from a low of 41 back on October. Any reading over 50 indicated month-to-month growth.
Yet the new orders component fell to 52.4, dropping below last October's levels. Stagflation, anyone?
As for the global outlook, the JPMorgan Global Manufacturing PMI has leveled off just above contractionary territory and has returned to levels last seen in 2008 as the economy was falling into the deep end.
For investors, I continue to recommend a cautious approach that focuses on precious metals and opportunistic short positions in economically-sensitive sectors like basic materials and semiconductors. Chip stocks are weakening noticeably as traders start to worry about the impact higher inflation will have on overall growth. The Semiconductor Holders (SMH) is on track to close below its 20-day moving average for the first time since December.
That means big gains lie ahead for the ProShares UltraShort Semiconductors (SSG) as well as individual short play Marvell Technology Group (MRVL). I am adding both SSG and a short in MRVL to my Edge Letter Sample Portfolio.
I found both SSG and MRVL with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Fidelity sponsors the Investor Pro section on MSN Money.)
Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at anthony@edgeletter.com and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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It's too bad the U. S. Government DOES NOT factor the RISE IN FUEL and FOOD COSTS when they determine how much TRUE inflation has gone up!! I find it very convenient these two items are purposely omitted especially when senior's and disabled people have not received a COLA for two years PRIOR to the START of THIS YEAR!
Hey OBAMA, you've killed about 1 MILLION tress worth of paper, writing USELESS Executive Orders since you sat your lame **** behind the desk in the Oval Office, why don't YOU do something RIGHT for a change and issue an Executive Order that DEMANDS the price of FUELS AND FOOD by inserted into the equation when figuring out the REAL COST OF INFLATION. That whopping $23.00 per month COLA I received in my first Social Security check in January of this year is already been chewed up by the OUT OF CONTROL INCREASE IN GASOLINE COSTS!!!!!! YOU REFUSE TO USE OUR GOD GIVEN RESOURCES HERE TO HELP KEEP GAS PRICES DOWN!!
Why am I using the word "GOD" when speaking of OBAMA?? OBAMA omits the word "GOD" ON PURPOSE EVERY TIME HE RECITES THE U.S.CONSTITUTION!! It's pretty bad when the president of this once proud and mighty nation does not even GO TO CHURCH!!!
WAKE UP AMERICA, FIRE OBAMA IN NOVEMBER THIS YEAR FOR SURE!!! The "Food Stamp" President cannot hold us good abiding "We The People" hostage another FOUR YEARS!! OBAMA WILL RUIN THIS COUNTRY FOR SURE IF GIVEN THE CHANCE!!
So matter how much you cut back or drive less or buy a economy car or Hybrid, they will still keep the price up there. They get US subsidies courtesy of the tax payers, drill it in the US back yards and US waters then turn traitor and sell it to the highest bidder.
They suck the life blood out of this economy and country to stuff they're own pockets with dollars.Showing record profits continously in a failing economy. They could care less about the US economy or how bad it will get for the citizens. They just as well sell secrets to the North Koreans because its "Economic Sabotage " for monetary gain. Its Treason and everyone of them should be shot or hung for it.
Welp, even Helicopter Ben thinks the GDP is likely to remain "tepid". After three plus years of trillion dollar deficits, and stimulus after failed stimulus, we now have the bill coming due for all the SPENDING we could not afford. The interest on this spending will now exceed the defense budget. The real problem is we recieved almost no value for any of it. Hence the parties over and now we have two choices... Huge tax increases on EVERYONE to pay for the drunken bing, or Helicopter Ben printing us out of debt (i.e. punish savers, reward debtors).
I am expecting much higher inflation. Gas prices may even exceed $6 by this time next year.
This is the change the Donkeys promised... Tell them your solution in November...
Gas prices go up weekly and all they do in Washington is conduct business as usual, forgetting about every day folks who have to take more out of their budget to pay for the damn gas!
Obama and others........wake up............start drilling for oil in this country. End the subsidies for Big Oil, fine them for price gouging, regulate them and do the same for the crooked speculators!!!
It's time to take this country back from the crooks in Washington and Big Business who train their puppets in Congress to do their bidding!!!
We all talk about oil but, it is truly a quagmire.
I did a bit of research and was shocked how little I know.
A barrel of oil-how much is that????
There are 42 gallons in a barrel of oil-not as I had thought 55 gallons as in most chemical drums-so at say 106 a barrel, crude costs $2.52 a gallon not $1.92 a gallon. With our government adding about 1/3 in taxes to every gallon of gasoline you buy it is amazing that gasoline can be sold at $4.00 as it needs to cover refining, labor, transportation and profit. NO I DO NOT WANT TO PAY MORE.
We hear that the price of oil has gone up because of issues in the middle east-how much of the oil that the United States uses comes from the middle east?
We get about 20% of the oil we import from the middle east. Most of the oil we import comes from Canada and Mexico and we do not pay the price quoted for Brent oil. The reason is that the oil form Canada and Mexico is a lower grade, does not produce as much gasoline and diesel and it has sulfur in it that has to be removed adding to refining cost.
Does anyone but me wonder, as I do, why the United States is paying for most of the wars in the middle east and doing most of the dying?
We criticize Obama for putting down the oil pipeline to bring shale oil from Canada.
Perhaps, this is the most bizarre. WE TO HAVE SHALE OIL IN THE UNITED STATES.
IT IS A LOW QUALITY OIL-BUT WHY WOULD WE BRING IT IN FROM CANADA IF WE HAVE OUT OWN?
They used to post on the pump what you are paying for the gasoline and what the tax per gallon is. Our government is happy to have you scream at the middle east. Scream at the evil oil companies. BUT, OUR GOVERNMENT ADDS ABOUT 1/3 TO THE COST OF EVERY GALLON OF GASOLINE THAT YOU BUY IN THE FORM OF TAXES.
To me, it is quite clear that we are being manipulated.
With the two morons Obama & Bernache increasing the money supply by 34% the last 3 years how could there NOT be inflation of at least that amount?
Last year, these idiots increased M2 by 10.7%! Have you been to the Grocery Store? The gas station? Home Depot? A clothing store? Inflation is rampant everywhere but housing.
Look at your damn tax bill lately? Talk about inflated...
I recommend you all think about these two morons when you go and vote in November.
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