Monday Thoughts – Faber & Colombus

6.1.09

“he (Bernanke) is still obsessed by the notion that if flat panel TV sets
decline in price it is bad but if postal rates, subway fares and insurance
premiums increase it is good”

Marc Faber – from his latest monthly market commentary on how Bernanke views the current inflation vs deflation debate

In the past I have written about how the cost of items that people buy rarely (computers, TV’s, etc) were dropping but that the things that people MUST pay for consistently (heating oil, gas, food, property taxes, Insurance) keeps going up. So needless to say I was smiling when I read that quote.

Faber makes many great points in this month’s commentary but his analogy of Colombus’ committee landing party and the circus of people running our economic affairs was very humerous. I won’t go into it all but for those interested, subscribe to his newsletter at www.gloomboomdoom.com. I completely agree with him that economists looking for deflation have a 1-2 month window – their ability to¬† see even 1 year into the future is horrible – deflation is not going to be a problem – period.

Both Faber and Jim Rogers have been on TV warning us about the impact of inflation of the money supply on price levels. We are NOW at the point where this really begins to be a problem. Last October, the world was worried about credit markets and such but that is likely past us now. Many investors and foreign governments are realizing that it may be better to hold real assets than US dollars so you are seeing headlines like this:

As Stocks Surge, US Treasurys Lose Their Appeal for Investors

As this position increases, rates rise – can you say NO MORE refinancings? Oh and that has been about 80% of the business for most mortgage brokers lately so I guess we can add a good number of mortgage brokers to the numbers of unemployed Americans in the coming months.

And the US dollar has been falling hard again (10%+ to the Australian and Canadian dollars, and about the same to the Euro). Remember those high oil prices and high gas prices from 2 years ago? As I’ve said in past columns, much of that price increase has been due to the US dollar falling (if it falls compared to other currencies then it takes MORE dollars to buy the same amount of oil from foreign countries) in addition to increased worldwide demand and falling worldwide supply.

I’m sure our politicians will blame evil oil companies again once prices climb back over $3. It’s their only way to cover up their foolishness in cranking up our debt and causing strain on our dollar – a concept most Americans don’t understand – blaming the bogeyman is EASY to understand – but often wrong. Which brings this back to the average citizen – understand this clearly please – your elected officials continue on the path of debt destruction because they feel that’s what YOU want; and it seems to be what you (you means the average voter – and it must be because these people continue to get reelected).

Understand, in the future, when your dollar buys a lot less, and the share of tax revenue paying interest on our debt goes from 22% to 45% (oh you didn’t know that, similar to a homeowner that bought a home with an adjustible mortgage, our government is financing most of our national debt with 3-5 year bonds instead of locking in low 30 year rates???), understand that this will be YOUR fault (again ‘your” if you are one of the 55% of voters that reelects our current batch of reckless politicians).

Many wiser investors have built positions in physical gold and invested in commodities to offset inflation. If you’d like to know more about that, I have written about those topics numerous times (use the search).

Good luck out there -it’s getting ugly.

Extra: Good Faber interview on Bloomberg video

Chris Grande