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Inflation Unplugged

Submitted by ilene on 10/15/2010 13:00 -0400

Inflation Unplugged

The dollar is making new lows.

As I’ve been saying all week(s) that is the story that is driving the market. Still people interview me and ask me how high I think the markets can go which is kind of silly because, as I keep trying to explain, the markets aren’t going anywhere, the only variable is the currency they are priced in. Why do people not get this? Why do financial writers not get this? Why do TA guys not get this? Why does nobody talk about this in the MSM?

Sure they talk about the weak Dollar or the strong Yen (but rarely the strong Pound or Euro, because it is contrary to the average viewer’s vision of America and we don’t want to upset the viewers, do we?) but who ever shows you a simple and obvious chart of the S&P or any other index priced in a foreign currency? How hard is this to understand?

So, if you are a Japanese investor, watching your US equities, THIS is how they are performing. It’s not much different from an EU perspective, where we FAILED the 200 DMA on 9/21 and the 50 DMA made a death cross last week. Yet I still see chart guys running out on CNBC telling us their TA tells them we can go to the moon. Sure, we can go to the moon. Price your stocks in Hungarian Forints and suddenly the S&P is at 240,000 - all we have to do is ignore the fact that the currency has changed - JUST LIKE WE DO WITH THE DOLLAR - and we are rich, Rich, RICH!

Yes, that would be ridiculous. Almost as ridiculous as a bunch of grown men, who make a living analyzing the markets, acting as if the underlying value of the currency we are pricing things in doesn’t matter. Do you know what the World’s hottest market was in 2007? Zimbabwe! That sucker would gain 500-1000% in a single day - invest over there and you made money hand over fist. Howard Stern had a game called "Who Wants to be a Turkish Millionaire" and he would give away a Million Turkish Lira and the joke was how excited the contestants were and how much they would be willing to humiliate themselves for what they did not realize was about $6.

That’s the con that is being played on American investors by the Fed. It’s a game called hyperinflation and in the early stages, it does seem like a lot of fun as your investments go up 10% while your savings devalue by 10% and the stuff you buy goes up 10%. So what do you do, you cash a little of your investments so you can buy more stuff and - WOW! - the Government’s plan is working,, you are spending money in the economy! But now you have more stuff (and the food and fuel you consume, so that’s gone) and your savings are still down 10% and you withdrew 10% of your investments but, not to worry, the investments go up another 10% and mask your next 10% drop in hard assets. And meanwhile, at the Hall of Unintended Consequences…

This cycle continues until your saving are worthless and you have used up all of your investments paying for day to day living and then the whole thing collapses in a giant meltdown when, like Zimbabwe, the government finally revalues the currency by cutting some zeros off of all the notes. As I’m writing this, Bernanke is giving an "inflation is good" speech. I like inflation, I think the US should inflate it’s way out of debt but the kind of inflation Ben is giving us is the wrong kind. QE inflation DEVALUES what you have and makes things you want more expensive. Stimulus inflation drives more cash through the workforce and demand drives up the price of goods so everybody benefits. It’s a BIG difference…

Who makes out well when we have hyperinflation without wage inflation to match? The investing class, of course - and that’s us. As I said yesterday, we have been making long selections and holding our noses as we buy but it’s the only sensible thing to do when the Chairman of the Federal Reserve is on a mission to cause inflation.

"The topic of this conference–the formulation and conduct of monetary policy in a low-inflation environment–is timely indeed" says Ben. Wow, really?!? What an amazing coincidence. Who could have imagined that the topic of the Speech you give on options expiration day with the dollar making new lows would just so happen to drive the dollar even lower and squeeze the markets higher - that is just a gosh-darn freaky coincidence!

But, is Ben promising enough to feed the market beast that’s already grown $5Tn in the past 30 days? Can he possibly dump enough money on the economy to fill this gaping value hole or is the whole thing going to blow up in our faces? We report, you decide…

As I said yesterday, I vow to spend this weekend destroying as many brain cells as possible in order to try to shut down my brain and join the party. As a fundamentalist, I have to lose many, many brain cells in order to buy into this nonsense but, as a guy who’s been around a while, I also know that being a fundamentalist in 1999 meant you missed almost daily doubles in anything that had a dot com attached to it. Right now we have a commodity bubble as if you can charge whatever you want for copper, oil, tin, wheat, corn and, of course gold without affecting global demand despite the fact that global wages are in decline, global standards of living are in decline and close to 20% of the people on the planet aren’t even working.

Goldman Sachs says "Fuhgeddaboudit" in their latest report, where they have now DOUBLED their predictions on commodities, now projecting a 30% rise for the year. This too reminds us of 2008, when GS goosed the markets with their almost weekly upgrades of oil and drove it up 40% as wave after wave of suckers came into the market, driving oil up to $140 a barrel - right before it crashed to $35 by the end of the year.

At $120 in May of 2008, Goldman’s target was $200 for oil and, at the time, I wrote "$200 Oil - Who’s Going to Pay For It?" That did not stop oil from rising another $20 (15%) before it crashed but I could say the same thing now about copper and corn and wheat and silver and platinum. Gold can go up to $5,000 because gold isn’t actually used by anyone and there’s not all that much of it so idiot speculators can make up prices on their shiny bits of metal the same way they pay $100M for a painting - when money is that meaningless, it’s hard to understand the real value of it.

That brings me to the ethanol scam. Hopefully I can get out of my preachy mode after this week but shame, shame, shame on Obama and this administration and every single member of Congress for perpetuating this nonsense. Corn is NOT an efficient fuel. It takes as much corn to fill up an SUV with fuel as it does to feed a person for an entire year. Just because something can be done, doesn’t mean it should be done!

There are 62M people who die of hunger each year on Earth including 15M children. Can filling up 15M tanks of gas be worth their lives? This is just total BS and needs to be stopped, maybe even more than Bernanke needs to be stopped:

It’s just one insane policy after another these days but, as I said, we will just have to go with the flow, no matter how stupid that flow may be. ADM, who spends millions of dollars buying politicians to push this ethanol nonsense, is going to be a great buy at $33. Heck, they were over $50 in 2008 and happy days are here again for the commodity pushers but you’d better make your 40% gains quickly as the dollars you will get back won’t be worth much if you wait too long…

Have a great weekend,

- Phil

Kill Markets picture credit: Elaine Supkis at Culture of Life News

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Thu, 11/18/2010 - 03:08 | 737023 meichou

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Wed, 11/10/2010 - 03:44 | 715151 cheap uggs for sale

Sat, 10/16/2010 - 14:28 | 655314 Quinvarius

I had originally wrote something pretty mean as a response to the ethanol attack in this. But I will tone it down.

When they use cattlefeed corn to make ethanol, the corn is still used as cattlefeed afterwards. The corn is not "used up" or "wasted". It is just a process that extracts additional value from the corn without removing protein and nutrients from the food chain. And ethanol is never made from the sweet corn humans consume.

There is so much crazed misinformation surrounding ethanol that you really should examine the sources of information and double check everything. There is definately a group with an agenda involved in spreading falsehoods.

Fri, 10/15/2010 - 21:05 | 654574 Kina

I think many of us saw the video of Zimbabwe where if you wanted to buy something the currency was specs of gold. There were billionairs in ZB dollars that would buy you nothing, but a tiny spec of gold would get you a loaf of bread.

When the shit is splattered all about, the currency worthless, people naturally turned to something they all accepted as a natural currency.

The thing about the shiny bit of metal that doesn't have too many other uses is that eveybody anywhere in the world will always accept it as a currency or a valid payment for something. So if you have no idea where to put your money to keep it safe, keep its value in comparison to the rest of the market, then gold becomes a choice.

Irrational or otherwise, thats how it has always worked.

Fri, 10/15/2010 - 19:46 | 654415 espirit

Speaking of the ethanol scam, it might be interesting to leak just how much the fuel producers/distributors/retailers, etc, etc, are subsidized to include corn alcohol in their product.

It's obscene and I'd rather drink it.

Fri, 10/15/2010 - 19:26 | 654365 37FullHedge

I have been looking around about water powered engines and it looks like the Stanley Meyers claims was a fraud, However improvements in better MPG petrol engines is in the mix using this type of tech, It was just something what come to mind.

Fri, 10/15/2010 - 19:46 | 654417 minus dog

We need to quit mucking about with feel-good energy products. We can take as long as we want to perfect things like ubiquitous solar power and cheap, reliable storage - but not if we run out of reliable energy in the meantime. That happens, it's lights out, hello new dark age.

Fri, 10/15/2010 - 18:53 | 654303 Patrick Bateman

Unless you can find a way to create calories with less calories there is no way to sustain an exponential anything derived off of creation of energy. You're just converting energy from one state to the other, but with a loss in which you do not understand, how can you find a way to sustain?

Fri, 10/15/2010 - 17:03 | 654000 37FullHedge

As I recall something about an engine which runs on water only, I dont know much about this even if its true or needs more energy to do things with the water than it produces a bit like this article,

Any ZHers Know anything regarding a water fueled engine?

Fri, 10/15/2010 - 18:26 | 654241 kayl

Stanley Meyer's water fuel cell, dune buggy. Google it.

Fri, 10/15/2010 - 15:36 | 653720 Edmon Plume

Ethanol is a bad plan because it reduces the food supply AND takes up a disproportionate amount of water to grow the corn and refine a single gallon of ethanol.

Fri, 10/15/2010 - 15:09 | 653631 Waterfallsparkles

Buy underware and Food. Better than gold. Cotton up 54%. Plus, trade war with China. Buy lots of underware and stock up on food.

I think that Food is a great buy now because the food on the shelves do not yet reflect the higher prices. But, in 2 months you can double your Money on canned goods.

Fri, 10/15/2010 - 19:42 | 654407 minus dog

Not sure that the food isn't reflecting the prices yet, but that's moot because everyone needs to eat. You choices for the foreseeable future are "buy high priced food now" or "buy higher priced food later". The good news is that the food does not lose it's value as long as it is within its shelf life, unlike Charmin Ben's toilet paper.

Fri, 10/15/2010 - 18:19 | 654220 Kali

Underwear! Yes. One of the things about civilization I like a lot. My better half kept laughing when I kept coming home with 10 pairs of new underwear and 20 pairs of socks for awhile. Don't under rate socks and underwear. Ask homeless people. Our local homeless shelter prizes socks and underwear donations very highly.

Fri, 10/15/2010 - 14:42 | 653588 uno

Today I heard the last time cotton was this high was during the Civil war. That must be music to Zimbabwe Ben's ears.

Fri, 10/15/2010 - 14:32 | 653549 Boxed Merlot

Look on the bright side, this scenario has already been played out. Don't you remember hearing about it in Sunday school? Joseph opens up a couple more storehouses and we trade our land at this point in the story. It just costs us our freedom as Joseph buys everything up for Pharoah who ends up owning it all. Joseph keeps his gig and even moves the family into the best of the land.

Problem solved, and we're even thankful!

(That is the right story, isn't it?)

Fri, 10/15/2010 - 14:18 | 653524 Mariposa de Oro

The ethanol scam is part of the soft kill method the elites are deploying to reduce the number of humans crapping up THEIR (the elites') planet. They want living humans reduced to around 500 million, tops. That ADM can make a fortune going along with it, is icing on the cake. Just sayin'....

Fri, 10/15/2010 - 14:17 | 653519 gwar5

So if the Fed is buying all the US treasuries and all the equities, does that mean they will officially take title to the USA and all the corporations? Will global warming go away then, so they can drill baby drill?

The only collateral left is us serfs squatting in former homes.

Fri, 10/15/2010 - 13:58 | 653436 knukles

Well, at least we can put to rest the speculation as to the Gubamnit's chosen path of resolution to the "debt crisis". (Oppps! Did I just coin a phrase?!?) Nope, won't be a default at all. Just an inflationary induced devaluation of the notional value.

And that is sincerely, good news and bad news. The good news is that the debt gets paid (whilst the debtholder gets serviced so to speak). The bad news is that it means that the "can" (do they really come that large or am I missing a term, here) gets kicked a long way down the proverbial road. And thus, more of the same old bad shit for a long long time. Tax and spend pablum.

No revolution. Just lotsa prolonged fear and loathing, mean streets.

Sometimes I wonder if this is not really a form of Hell and we just don't know it.

Fri, 10/15/2010 - 18:16 | 654213 Kali

Hell, yes, it is.

Fri, 10/15/2010 - 13:56 | 653434 sharkbait

You are so right about ethanol. It is insanity in the highest order for food crops to be used to make fuel for cars to burn.

Natural Gas/electric hybrid vehicles with lot's of new nuke plants, that is the answer.

some day long in the future, they will be able to rational discuss how killing the nuclear power industry was the greatest environmental and geopolitical disaster of all time.

Save the environment, kill an environmentalist! (not a PC statement but you know what I mean)

Fri, 10/15/2010 - 13:34 | 653359 Buttcathead

I wish my social cecurity check was paid in Euro's.

Fri, 10/15/2010 - 15:37 | 653724 Edmon Plume

I wish mine was paid in gold.

Inflation Unplugged

Inflation Unplugged

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