Get your ducks in a row ASAP because here comes inflation again

[dc dalton]

As most of your know I watch the financial markets pretty close attempting to predict problems before they hit (a self survival thing I assure you).

After the massive deflation of last summer / fall things got really really weird. The US dollar hit almost record highs against the Euro and other currencies, oil, gold, silver and most commodities went through the floor. Then came the beginning of the massive 'pumping' of money into the system by the Bush administration and the FED, attempting to prop up banks that should have been allowed to fail.

Obama has also followed the 'universal FED play book', dumping even more money into the system in a foul attempt to prop up AIG, several banks and the auto makers.

Anyone that understands economics 101 must know the more of anything there is the less it is worth and this also applies to currencies. Creating all this money 'out of thin air' is in fact an economists nightmare come to fruition.

But inflation seemed to keep itself in check over the winter even with all this money being created. Some attribute that to the fact so much money was being 'destroyed' by losses on Wall street and other collapses. I am now 100% convinced that asset destruction has ceased and we are back on the verge of inflation that will make last summer look like a fart in the wind.

First let's look at the US dollar since it's high in March 2009:



It's obvious there's something going on as the 'downward spiral' has been damn near unstoppable.

Compare the current numbers to the value of the dollar on the 1 year chart:



Notice we are only about 6 points above the dollar low last July of 72, the same valuation of the dollar that ran oil and other commodities through the roof (can anyone forget $4 gas)

Contrary to what the MSM wants you to think the price of goods is a direct reflection of the value of the dollar. Have you noticed how gas has run back up in the the $2.50 - $2.60 range? Compare that increase to the 1st dollar chart and it becomes crystal clear what's going on.

Several other indicators are also pointing to inflation:

Silver has run up from the $11 range to the high $15 range in just a few months:



Gold has started it's rise again from it's peak in February (the spike there was in fact investors scared to death and looking for anything they felt was 'safe'). Gold now sits only $20 off of $1000



But without a doubt one of the scariest things I have seen is the rising rate for government t-bonds with 10 year bonds now jumping to the 3.7 mark. This is fact is a demand by investors in t-bonds for a better return. They are in fact saying 'we expect inflation and want more for our money'. As many know China is one of the biggest holders of these bonds and they seem to be getting a tad nervous about the dollar. Obama has sent Clinton and now Geithner to assure them all is well but they don't seem to be believing the 'great lie'. (see my other post about this)

Heck even a quick scan of the commodities markets shows a nasty symptom of (everything is going up)

http://money.cnn.com/data/commodities/index.html

At this point I am fully convinced we are about to see some exceptionally ugly inflation in this country. The money rolling out of Washington isn't stopping any time soon (they are reporting it will cost us another $50 billion just to get GM through bankruptcy).

So what's the point and why should you care? Simple, now is the time to prepare yourselves to be able to weather this storm. Stocking up on food, fuel, and other things affected by this mess is the number one way to protect your family. As this bout of inflation gets going expect to see prices on food and anything that is shipped (which is almost everything) soar again and if you wait too long your budget is going to get beat up.

Another way to protect yourself is to start getting into things that hedge inflation. Some people think you invest in gold silver and other commodities to make money but you do not, you buy them because as inflation goes up the commodities 'equal themselves out' at the new prices, protecting your hard earned money.


Just my thoughts, this has been wearing on me for about a week now and as I said before I am pretty well convinced it's going to be an ugly summer inflation wise! Take it for what it's worth, call me an idiot or not.


Some additional reading for those interested:

http://www.moneyandmarkets.com/bond-...insanity-34018

http://www.moneyandmarkets.com/treas...-storm-3-34002

http://www.silverbearcafe.com/private/05.09/hell.html

http://www.silverbearcafe.com/privat...inflation.html (BTW, not a huge fan of Faber but he has some valid points in this article)

[PocketProtector]

Plus the FED is buying up T-Bills with printed in the basement (monetizing the debt) dollars. That's bad.
Anything positive coming from "Stimulus" will be in choppy spurts and there will be no long term better fundamentals to this economy. In fact, what's going on is freaking insanity.
Some will argue that it's just an approach to fixing the economy. I submit that it's an agenda and to hell with the economy.

[dc dalton]

Plus the FED is buying up T-Bills with printed in the basement (monetizing the debt) dollars. That's bad.

Yes you are correct there, they are buying their own bonds with 'printed' money, kind of like loaning yourself money.

[camper]

So above all else, we should remember to keep the barrels pointed AWAY from ourselves, right??

A monday morning story about fluffy orange kittens would have been nicer, DC.

camper

[ehidle]

You should go look at a 5 year chart for Treasuries before you get alarmed about 3.7%, which is historically LOW for T-bills. In fact, T-bills have not been below 4% since the 1960s..

[RandomTask]

I'd say that between today and 60 days from now, it would be a good idea to lock in your variable-rate HELOCs folks! I think the Carter years are about to return.

[adymond]

Yes you are correct there, they are buying their own bonds with 'printed' money, kind of like loaning yourself money.

You mean that's not sound economic principles?

Shit! How am I going to finish preping? I have much more ammo and food to buy and I don't like my house sitting between Philly and Chester.

What is wrong with people that they can't see this shit is leading to a bad place?

[camper]

What is wrong with people that they can't see this shit is leading to a bad place?

- People bought homes they couldn't afford with mortgages they never should have signed.
- People took out home equity loans to go on vacation.
- People bought stuff they didn't need on high interest credit cards.
- People buy cars & trucks which in some cases equal their salaries every two years simply because they want to have a warranty or like the 'new car' smell.
- People spend 10k more for a hybrid so they can save $400 per year on gas.

And you ask why people can't see this leading to a bad place....

LMFAO!!



camper

[H.E. Pennypacker]

Define 'inflation', and the degree of it which you speak.

Generally, we should 'inflate' at the same rate our economy (GDP) is growing. If we have inflation with no growth - see: Jimmy Carter - we have trouble. Wages aren't increasing, there is no economic growth, yet everything is costing more. Now there could be two reasons why the markets are predicting inflation: a rebound in economic growth (good) or too much money sloshing around (bad).

I guess it depends on which side of the argument you believe. As said, 3.7% on a 10-year is still really low, but the spread between short-term yields and long-term yields is widening, suggesting inflation down the line (Economy getting better/back to 'normal'? Hopefully.). It was under 3% for a while - which is unheard of - due to a 'flight to quality' to Treasuries and away from risky assets (stocks). Stocks are rebounding as of late and coincidentally Treasuries are getting hammered. Money out of fixed-income and into stocks - the opposite of what happened in October/November, etc.

If things are/were as bad as everyone said they were, then I'm not worried - all this infusion of money won't cause huge inflation. If things aren't/weren't that bad, then we'll see inflation.

[PocketProtector]

- People bought homes they couldn't afford with mortgages they never should have signed.
- People took out home equity loans to go on vacation.
- People bought stuff they didn't need on high interest credit cards.
- People buy cars & trucks which in some cases equal their salaries every two years simply because they want to have a warranty or like the 'new car' smell.
- People spend 10k more for a hybrid so they can save $400 per year on gas.

And you ask why people can't see this leading to a bad place....

LMFAO!!



camper

Hey O is showing the way, is he not?? So it should work right ?? The truth is Politicians don't know SH#T. They surround themselves with more that don't know SH#T. So 1 SH#T plus 1 SH#T = No sh#T ????