Benny Drops the Big One!

ilene's picture

Inflationary Thursday - Benny Drops the Big One!

By Phil of Phil's Stock World

Mutually Assured Destruction (MAD).

That was the actual military policy of the United States of America and the rest of the World for about 30 years.  We had Presidents and Kings and thousands of bureaucrats - the top minds of 2 generations - all getting together on a regular basis and coming up with or buying into insanity like the system on the right.  We look back at it now and say "Gee, what were we thinking" but the whole World went down this path for a  while.  

There is a scene from Doctor Strangelove where Major Kong, the bomb commander, is so focused on completing his mission that he loses sight of the bigger picture but he doesn't regret his actions - he goes down in a blaze of glory that ultimately dooms the World but his sense of personal triumph at achieving his wrong-headed goal is the punctuation for the film.  Watch this scene and think of Bernanke, tinkering with this or that but so focused on "fixing" the economy with the one tool at his disposal that he ends up destroying it instead. 

After putting over $2Tn into our Dead Parrot Economy since the crash and getting no response, Bernanke is upping the ante with another $600Bn round of Quantitative Easing ON TOP OF the ongoing $250-$300Bn round of POMO commitments for a total of about $110Bn per month dumped into the economy between now and the end of Q2.  This represents a 10% increase in the money supply over 8 months and, therefore, a planned 10% decrease in the purchasing power of your dollar-denominated assets or, to put it bluntly - a 10% tax on everything you own.

That is the joke of this country.  People sit there arguing about whether or not to extend a tax cut that will cost 3% of a year's salary while the Fed, with no electoral oversight, is simply taking 10% of your LIFETIME savings - AGAIN!  They did it last year, they did it this year and now they promise to do it next year too.  That's 30% folks!  

You don't have to worry about the commodity pushers missing a signal - Oil, gold and copper jumped 2% yesterday and wheat, cotton and corn are on a similar path in the futures.  Of course the speculators think this is just great and I told you on Monday that today was a POMO day and I even gave you a play yesterday that makes 1,300% off this inflationary BS so don't come crying to me that you can't keep up with inflation because we are the investor class and we LOVE this stuff. 

I just feel a little bit bad for the bottom 95%, the suckers who have to pay for all this whenever they need to drive to work or buy a shirt or, dare we dream - eat!  It sucks for them when the price of the things they HAVE to buy, the things that already eat up 60% of their disposable income, go up 2% in a day, doesn't it?

Those poor suckers can't choose what not to buy to survive but WE can choose what to invest in as we rip the money out of their wallets on an ever-accelerating basis through commodity inflation.  

As I said, I feel a little bad but not so much now that the elections are over and the people now have exactly what they voted for:  Back to a bank and commodity-driven, survival of the fittest, Big Business economy where their jobs will be shipped overseas to the lowest bidder as the rich people sit around trying to figure out how to begin charging them for water and air as well.  Just another form of Mutually Assured Destruction?  Hell no, we're (the investing class) going to make a fortune and the only people destroyed will be everyone else - it's a fine plan!

The Bernanke plan to rebuild banking by destroying the American Worker is in full force this week with Jobless Claims up 457,000 this morning while Big Business squeezes another 1.9% more productivity out of terrified workers who even took a 0.1% pay cut (Unit Labor Costs) for their troubles.  That has sent the futures to even higher highs as nothing is better for the markets than cheap labor.

Small cap investors should be a bit concerned about mounting misses in October Same-Store Sales with BONT down 4.2%, AEO down 2%, ARO down 2%, HOTT down 8.5%, DDS down 1%, KSS down 2.5%, SSI down 3.5% along with disappointments (so far) from ANF (up 2% vs 4.5% expected)  and M (2.5% vs 2.8%) as well.  That's the worst performance we've seen all year but CNBC is accentuating the positive and eliminating the negative as GE's Jack Welch was the special guest, doing the happy dance as a good portion of that QE2 money ends up in his company.  

The dollar is falling through support at 76 and touching 75.80 just ahead of the bell so that 0.1% pay cut taken by American workers is a 4% pay cut for the month of October if they are paid in dollars, which began the month at 79 and down 8% from Sept. 1st (83) and 12% from July 1st (86).  Think of how fantastic this is for our Multi-Nationals - who collect international currencies as payments and get to pay their US labor force in (ROFL) American money!  To foreign corporations, this is like paying their American workers in beads and trinkets...   

In addition to our financial plays, we have our list of multi-national dividend payers to work to the upside but we're not going to be chasing this rally up - we'll more likely be shorting into the open as we test the breakout levels I set out for Members yesterday morning at Dow 11,500, S&P 1,200, Nasdaq 2,600, NYSE 7,750 and Russell 750.  Since the Dow has the farthest to climb, they are the focus of our upside short-term plays but to play for the QE2 rally, our 3 leveraged financial plays give the most bang for the deflating buck.  

Downside play of the day will be the QQQQ WEEKLY $53 puts for .10 - a gamble but a huge payoff if we turn down on tomorrow's Non-Farm Payroll and they were as high as .80 yesterday so hoping for .40 is not unrealistic but, keep in mind, they do expire tomorrow so just a craps-roll type of bet.  

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Cpl Hicks's picture

Ms Ilene,

What's the report from the Streets of France? Was that righteous revolt against the PTB successful?

Remember that? Last week? You were all rising up angry, street fighting man mad.

You found something new to jerk off about? Oh, never mind.

Buck Johnson's picture

Bernanke is throwing a hailmary pass and hopeing this can kick start the economy without causing hyperinflation.

Panafrican Funktron Robot's picture

In spite of all this, I think the dollar trade weighted index hits 88-90 by the end of 1Q 2011.  Benny is fighting a battle he can't win.  Euro in the 1.15-1.18 range is a near certainty.

Winston Smith 2009's picture


The Telegraph said while countries that have mostly trade surpluses with the United States were all trying to devalue their currencies—China, Japan, Korea, Thailand, and Switzerland, amongst others—the US was starting to retaliate with such measuers as the Reform for Fair Trade Act. It then said:

The atomic bomb, of course, is quantitative easing by the Federal Reserve. America has in effect issued an ultimatum to China and G20: either you stop this predatory behaviour and agree to some formula for global rebalancing, or we will deploy QE2 `a l’outrance’ to flood your economies with excess liquidity. We will cause you to overheat and drive up your wage costs. We will impose a de facto currency revaluation by more brutal and disruptive means, and there is little you can do to stop it. Pick your poison.


Last one to the bottom is the "winner." Har.

StychoKiller's picture

Just about the only analysis I've seen that explains the Fed's actions!  What's a Chinese Govt to do?  Pull the trigger, blow out their brains by selling their Treasuries?  Throw in the towel and re-value their currency?  Someone get some Chinese tea leaves readers in here, stat!

Cpl Hicks's picture

Hey Phil, you should have a disclaimer at the bottom of all your posts- something along the lines of:

This self-promotional piece is for advertising purposes only and should not be considered serious advice and/or analysis.

ebworthen's picture

Yes, my Bacon/Coffee inflation indicator has gone crazy in the past 6 months.

Notice that Dominoes and Pizza Hut are LOWERING the price of their pizza - it is something you can make on your own, buy a take and bake, or do without.


Bob's picture

Fantastic piece, Phil! 

Please keep 'em coming. 

BigJim's picture

But otherwise (how the investor class are making out like bandits at the expense of J6P who has no idea what's going on, or what to do about it) I'd say you're on the money.

BigJim's picture

"Think of how fantastic this is for our Multi-Nationals - who collect international currencies as payments and get to pay their US labor force in (ROFL) American money!  To foreign corporations, this is like paying their American workers in beads and trinkets...   "

How are they earning this foreign currency? Presumably by employing foreign workers... and as they're paying them in the local currencies, it balances out, no?

Just as when (remember?) the US$ was strong, US multinationals weren't making any more of a killing because they could pay foreign workers with US$ - because to have earnt those US$, they had to employ US workers.

Joe44oz's picture

And the number one news article on Yahoo today? ..... The McRib is back!

McRib Locator

I pity the fool who lives in Montana.

Cpl Hicks's picture

News in from San Fran in the great State of California. They have banned McD's happy meal.

There, there...don't you feel better now?

Betty Swallsack's picture

Holy Mis-reporting, Batman!  Get yer facts straight.

Fast food giant McDonald's says it is "extremely disappointed" by a decision by San Francisco authorities to put the kibosh on Happy Meals and impose a ban on giving away toys with kids' meals that don't meet certain nutritional standards.

Under the ruling, scheduled to take effect in December 2011, San Francisco restaurants will be allowed to include a toy with a meal only if the food and drink in the meal contain fewer than 600 calories, less than 640 milligrams of sodium and if less than 35 per cent of the calories are derived from fat (less than 10 per cent from saturated fat), except for fat contained in nuts, seeds, eggs or low-fat cheese.

Cpl Hicks's picture

Oh, well that changes everything.

Seriously, what thay have done is created a niche market for somebody to sell a Nut, Cheese, Egg Patty on a Special Sauce, Sesame Seed Bun .....sandwich.

It's all academic (as most lefty issues are) seeing as how there ain't no kids in San Francisco anyway.

Fish Gone Bad's picture

I just love the McRib sandwiches. 

Joe44oz's picture

With the price of pork up 60%.... can you still afford one?

Winston Smith 2009's picture

You actually think there's pork in a McRib? ;-)

Betty Swallsack's picture

(gasp!) Nor is there any sign that there was actually a rib in a McRib!

russki standart's picture

What makes you think that the McRib is made from Pork?