Inflationary Thursday – Dow 15,000 + $5 Will Get You a Happy

Inflationary Thursday – Dow 15,000 + $5 Will Get You a Happy Meal

Courtesy of Phil of Phil's Stock World 

Are they rioting in Africa?

Check – they are rioting in Africa!  Toppling governments in Tunesia?  Check, government toppled. Riots and demonstrations also in Albania, Belarus, Jordan, Libya, Lebanon, Ireland,Egypt, Yemen, Zambia…  Even the British Royal Family attacked in their limo after being booed and jeered by a mob chanting "off with their heads."  

If nothing else disturbs you while you buy your NFLX today – that last one should. Rich folks in an industrialized nation trying to go to the theater in their limo and being attacked by an angry mob. How long before we (in the top 1%) need to armor our cars and hire bodyguards? Is this part of the Fed’s plans to create jobs – make the top 1% so much richer than the bottom 99% that we’ll need to hire guards just to go shopping at Whole Foods as we drive past the bread lines?

“We’re in an era where the world and nations ignore the food issue at their peril,” World Food Bank’s Josette Sheeran said in an interview yesterday at the agency’s Rome headquarters. Risks of global instability are rising as governments cut subsidies that help the poor cope with surging food and fuel costs to ease budget crunches.

The global recession has eroded government aid that helped people in poorer countries afford bread, cooking oils and other staples. The U.N.’s Food Price Index surged to 214.8 in December, exceeding the previous record in 2008 when rising costs and fears of shortages sparked riots from Haiti to Egypt. More than 100 people have died this month in protests in Tunisia against food inflation, unemployment and alleged corruption, according to the U.N.

Michael Klare writes: "Already, combined with staggering levels of youth unemployment and a deep mistrust of autocratic, repressive governments, food prices have sparked riots in Algeria and mass protests in Tunisia that, to the surprise of the world, ousted long-time dictator President Zine al-Abidine Ben Ali and his corrupt extended family. And many of the social stresses evident in those two countries are present across the Middle East and elsewhere. No one can predict where the next explosion will occur, but with food prices still climbing and other economic pressures mounting, more upheavals appear inevitable. These may be the first resource revolts to catch our attention, but they won’t be the last."

Let’s begin with food, the most important and volatile of these commodities. Food prices declined in October 2008 after the onset of the global financial crisis, but that seems to have been an anomaly. The December 2010 index of global food prices compiled by the U.N.’s Food and Agricultural Organization (FAO) hit a record 215, one point higher than in the spring of 2008. (In that index, based on a “bundle” of food staples, a baseline of 100 represents average prices in 2002-2004.) In fact, some food products, including sugar, cooking oils, and fats, are now trading substantially above their 2008 levels; others, including dairy products, grains, and meat, are inching perilously close to record levels.

The numbers are already staggering. According to the IMF’s very conservative measurement, which peg US inflation at just 1.5%, the end of year inflation is 4.6% in China, 3.7% in the UK, 5.9% in Brazil, 8.8% in Russia, 8.3% in India, 4.4% in Mexico, 6.4% in Turkey, 5.7% in Indonesia, 10.9% in Argentina, 11.9% in Iran, 26.9% in Venezuela, 10.4% in Egypt, 11.8% in Nigeria, 15.5% in Pakistan… Judging from who’s rioting and who’s overthrowing their government I’d say about 10% is the point at which you may want to consider doubling up your security detail before you head downtown.  

Don’t worry though, we can easily afford the minimum wage thugs we hire to bash in the skulls of the unemployed thugs who want to get their hands on our stuff, right? POT, for example, announced a 103% increase in earnings last quarter as the price of fertilizer skyrocketed as speculators snapped up supplies. The stock is so high now ($175) that the company is announcing a 3 for 1 split so we can give a few shares to the help next Christmas – isn’t that charming?

India’s market plunged 5% this month, the Shanghai Composite is off 17.5% since November and Egypt (EGPT) dropped 10.6% TODAY but don’t let that bother you – everything is just fine – until it isn’t, of course but then, who could have ever seen that coming, right?  

Most of this Global inflation is being sparked by our own Federal Reserve, since the Dollar is 62% of global reserves and almost all commodities are priced in Dollars and the Dollar is down 4% for the first month of 2011 – putting that much more pressure ON TOP OF those shocking 2010 inflation rates.  

Well The Bernank gave the rest of the World a huge FU yesterday as the Fed announced (unanimously now that Hoenig is no longer a voting member): "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period." 

That comment has been interpreted to mean until US jobs come back and that means, pretty much, forever. This was enough to send the Dollar down to month-lows at 77.70 and that popped gold back to $1,346 (up 1.5%) overnight and sent oil back to $87.50 (up 1.5%) and copper back to $4.30 (up 1.5%) and silver up to $27.50 (also 1.5%) – so a pretty uniform boost to commodities on a 0.5% dip in the dollar is clearly disproportionate and will, of course, choke the life out of global consumers.  Yay – let’s buy some commodities!!!

Actually, to be honest, we already did. We went bullish on gold on Tuesday and bullish on silver yesterday in Member Chat, even as we took short-term short bets on the indexes because we feared exactly what happened yesterday – the Fed is keeping those free money spigots going full-throttle, no matter what the consequences are for the bottom 99% (hence the title of yesterday’s post).  This is good for the markets but bad for the World.

I feel bad about making money this way but, as I said yesterday: "You’d better be out there making an assload of money because you’ll need it to keep up with rising prices for things you buy and declining values of your US assets." Now we have to factor in the price of security people to guard our gold when we’re going out to the AAPL store for our IPhone 5s (which will also be able to be used as a credit card!). 

Keep in mind that gold and silver are our defensive plays. In Member Chat yesterday, Jromeha mentioned he’s 80% in cash and 85% short the market on the 20% in play and I said I thought that was an excellent way to play what I felt was a blow-off top after the Fed. We added 2 disaster hedges yesterday, a TZA spread that pays 500% if we get to $17 by April and a QID play looking for a quick 66% if they hit $11 by March.  That’s in addition to our very short play on the Dow so we are SHORT in the short-run – DESPITE all the foolishness out of the Fed.

Something has got to give and the dollar remains stubborn above the 78 line and the Russell hasn’t taken back 800 and our "Secret Santa Inflation Hedges" from Christmas and our "Breakout Defense Plays" from early December are up HUGE and need to be protected, as do the dozens of other long-term bullish trades we’ve selected since the beginning of the year. It’s those short, sharp shocks that will get you in this market – the long-term will take care of itself.

454,000 of our fellow Americans were shocked with pink slips last week as Unemployment Claims rocketed back 12.4% up from last week’s 403,000 job losses. That’s the GOOD news compared to Durable Goods, which plummeted 2.5% in December (isn’t that Christmas?) and that is off a whopping 266% lower than "expert economists‘" expectations of a 1.5% gain.  

Hey, at least we’re not Japan, which lost its AA rating this morning as S&P downgrades their long-term debt to AA-. S&P also notes Japan’s demographic situation will strain government finances even more in the future.  Will this cause the Yen to drop and the Dollar to pop? Hell no – Japan’s economy may be a 20-year disaster in progress but it’s not a Bernanke!

Sarkozy is over in Davos talking up the Euro, saying: "Whether it be [German] Chancellor Merkel or myself, never will we turn our backs on the Euro. Never will we abandon the Euro," he said. He added that those who bet against the euro should watch out for their money. "The Euro spells Europe. The euro is Europe and Europe has spelled 60 years of peace on our continent, therefore we will never let the Euro go or be destroyed," he insisted. BUT - "The dollar will continue to be the world’s number one currency," he said.

Spain, Ireland, Greece and Portugal will probably remain “stuck in recession” for the next 18 months and be the laggards in a three-speed European recovery, Standard & Poor’s said.  S&P sees Germany, Europe’s largest economy, and Finland leading the euro region’s recovery this year, with growth of at least 2 percent, Chief European Economist Jean-Michel Six in Paris said today. The U.K., France, Italy, Belgium, Luxembourg and Netherlands will follow, with expansion of in a range of 1.5 percent to 2 percent. The “three-speed” recovery will “complicate” the job of the European Central Bank this year, said Six, who sees the first interest-rate increase at the end of 2011.

If the Pending Home Sales don’t send us off a cliff, we’ll be looking at an upside play on FAS and XLF again (we had one on Tuesday that went very well already).  Our last entry points (with option plays, of course) were $29.25 on FAS and $16.25 on XLF and today is another POMO day, courtesy of the Fed, as is tomorrow and free money always does wonders to cheer up the Financial sector.  

NUE missed earnings and RCL, RTN, PG, MUR, CY, MO, MJN, JBLU, BMY, DHI, CNX, CL, AUO, OI, DRE, ETFC and AMLN all missed either earnings or revenue targets since yesterday’s close but don’t let it bother you as long as the dollar keeps going down – that makes everything we buy more "valuable" – even poorly performing stocks!   Isn’t investing simple?

We can’t wait to clear the last of our technical hurdles (Russell 800) so we can put that sideline cash into play and, like our mindless inflation hedges from December that have doubled and tripled up already – we look forward to betting on the next round of the decline and fall of the United States of America – you burn Rome, we’ll bring the fiddles!  

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Comments

[J K]

That's why we need our Netflix, so we don't have to leave our compound! If you have to go out in public, I recommend one of these:

http://www.youtube.com/watch?v=Cu6F4aYJDBY&feature=related

[topcallingtroll]

You bought back into precious metals? This should be interrsting! I think there is still a ton of complacency and even arrogance in the gold and silver crowd. I think you bought in too soon, but I certainly sold too soon. i need it to go below 25 for me to be vindicated and potentially find a new entry poiint. we may test the 200 dma. wouldnt that be something!

[bronzie]

"The Russell view - It's virtually impossible to successfully time in-and-out trades during an ongoing primary bull market.  Usually what happens is that the trader has moved out of the market just as the bull trend resumes.  Thus, the bull market does what it's supposed to do - advance while leaving most traders and Johnny-Come-Latelies behind."
Richard Russell, Jan 26, 2011

Richard has been watching the markets on a daily basis for 50 years now - he probably knows what he is talking about ...

“It was never my thinking that made me money but my sitting tight.”
Jesse Livermore

Jesse learned the same lesson that Richard is trying to share with us - take a position and hold it until the primary trend fully expresses itself

the primary trend in the precious metals markets will end in some kind of parabolic blowoff - all we have seen so far is 10 years of a steady, relentless climb - the top is still 3 to 10 years away - trade in and out at your own peril

[Artful Dodger]

[edit: reply to Bob]

+1

Didn't you know that if you acknowledge your sleeziness or two-facedness than that makes it ok?

The Artful Dodger, and other artful dodgers, know that you just pretend you're doing god's work.

[Bob]

Interesting that the guys whom you will be hiring to protect your ass are "goons" of a much lower order, but you're so down for exploiting this market in spite of the impact of that. 

Sleezebag Fail. 

Wonder what's wrong on Wall Street?

[michaelduff]

Coming in off the RSS feed thinking, "Man I hope the extended version of this headline says 'meal.'"

[Buck Johnson]

Things are getting interesting around the world aren't they.

[mussaw81]

I'm sure Bernanke knows what he's doing and is acting under pressure from those that are establishing a new order with a new monetary system.

[DosZap]

I never leave home w/out my G20, 6-15rd mags, and an AK Folder,with 6 full clips.Figure if that won't at least get me started, I deserve death.(LOL)

The dudes at 7-11 look at me funny, but only for a nano second.

LE pulled me over the other day and  asked why all the hdwre, and where was I headed.

I told him for a job interview.

He said Ok, drive safe!.

[something fishy]

As the great MLK Jr. wrote almost 50 yrs ago....

"Injustice anywhere is a threat to justice everywhere". 

Do you think you're that insulated?

[gwar5]

When inflation comes here and the market crashes reality will hit home to everybody.

[mynhair]

What's a Crash?  BTFD, YFI.

QID back to 11?  WTF?  Must be after it's next reverse split.

[mynhair]

We got $5 hookers in the US already?  Damn snow jobs...

[walküre]

Actually, to be honest, we already did. We went bullish on gold on Tuesday and bullish on silver yesterday in Member Chat, even as we took short-term short bets on the indexes because we feared exactly what happened yesterday

I would actually do the opposite. Bullish on silver and slightly bearish on gold. If you must play the paper, you can buy silver and short gold as a hedge. Given the historically distorted ratio between gold and silver, and gold not moving higher short term I guess the truth is somewhere in the middle.

Not that the paper price has any relevance to the value of either metal.