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-- Posted Thursday, 5 August 2010 | Digg This Article | | Source: GoldSeek.com
Rick’s Picks Thursday, August 5, 2010 “Phenomenally accurate forecasts” We thought the inflationistas would back off now that global deflation has ravaged just about every asset class save bullion and T-Bonds for the last couple of years. Actually, they’ve been pretty quiet lately, even if there are still a few money-supply nuts who believe not only that inflation is, or will be, a concern, but that the deflationist somehow have the big picture wrong. To all of you we say once again, Wake us when Americans can sell their homes for a quadrillion dollars, give or take a few zeros. Meanwhile, with CPI inflation sinking rapidly toward zero, check out this link to an essay by Puru Saxena, who raises some of the weakest anti-deflationist arguments we’ve heard so far. It’s good for laughs, but not much more. A reader sent us the link after we’d promoted a Wall Street Journal report earlier this week that some major-league financiers have finally copped to the reality of deflation. We’re talking about guys whose opinions count: Bill Gross, Jeremy Grantham, and hedge-fund managers David Tepper and Alan Fournier, to name a few of the best-known converts. "Deflation isn't just a topic of intellectual curiosity, it's happening," said Gross, who runs the $239 billion Pimco Total Return Fund. Lo, no sooner had we published the link than we heard from our old friend Zane B., who continues to push the intuitively appealing argument that inflation is about to take off because of a weakening dollar. (What’s about to take off is marginal tax rates, as far as we can surmise, and surely no one would argue that that is inflationary.) Zane used to work for a foreign auto manufacturer, and he asserts that foreign autos, for one, will need to become pricier in dollars if their makers are to turn a profit. We would argue that the makers’ assembly lines will grind to a halt unless they are able to continue selling at cut-rate prices to an increasingly down-and-out American market. How many Lexuses and Benzes would they be able to unload here if prices were to rise by 15 to 20 percent or more? Keep that question in mind as you ponder Zane’s argument: Wal-Mart’s Role “[Earlier this week], the dollar was 132.27 against the Euro, 85.8050 against the yen and 1.5948 against the pound. This is very significant, especially for the yen (another support level gone; the Japanese Postal Service had unofficially pledged to keep the yen at 90+). It is an exponential/logarithmic thing (like the Richter Scale) in that 89 to 90 is much more significant than 225 to 224. When I worked at Subaru in the early 1980s, the yen was 225-230 against the dollar. Anyway, this signals (at least temporarily) that inflation, now slowly accelerating [Oh, really?], will come roaring back soon; the above nations aren't just major trading partners -- their (relatively) low-priced production and wholesale prices are what help keep domestic prices in check. I also point to the now-floating yuan as Wal-Mart alone accounts for five percent of all Chinese exports. Worse still, oil is slowly rising. This incomplete picture, when viewed in its entirety, seems to point to something major, really major, brewing both in the worldwide (not just the ones I've mentioned) foreign exchange markets (possibly a widening of the ‘basket of currencies’ some oil producers sometimes demand as payment rather than the Yankee dollar). It could also point to the fact that NOW, right now, is the time to get out of fixed income investments. As you've undoubtedly noticed utilities (especially) and bonds have now reached what some, perhaps, would call unsustainable levels.” Zane, if it will help put your troubled mind at ease, we’re not the least bit worried about, for one, $100-a-barrel oil. Not that a speculative blowoff couldn’t push crude to that level or higher – only that the market could not sustain such prices for long, especially with the world economy teetering at the edge of a deflationary abyss. Crude at $100 a barrel would kill the global-recovery hoax faster than anything else we can think of, but it would also kill the demand for oil. Come to think of it, cap-and-trade legislation is designed to achieve the same end – a big increase in the price of energy to dampen demand. Is there anyone who believes that that would be inflationary? *** Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. There is a substantial risk of loss in futures and option trading, and even experts can, and sometimes do, lose their proverbial shirts. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2010, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Thursday, 5 August 2010 | Digg This Article | Source: GoldSeek.com
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