5.7.09
Hey folks, in case you were starting to like the lower gas prices I wanted to drop a warning: don’t get too comfortable. And if you think there won’t be inflation problems (larger than the ones we already have) don’t get comfortable with economic recovery! Here’s why:
Have you noticed in the past two months, as the economic outlook has improved (the outlook not the actual economy), that prices in commodities have been on fire? Oil was below 40 dollars per barrel, now it is back firmly over 50 dollars. Copper is again over $2 after falling far below that and the prices of food commodities are rising again. Few see this issue, but as the global economy reignites, we will go back to higher oil/gas prices, higher raw materials costs for manufacturers, packagers, and industry, and higher prices for food. The only way there wouldn’t be inflation is if there were no economic recovery – it’s simple. Recovery = demand for raw goods.
The alternative is, well there are 2 possible other scenarios. One is that the economy does not recover quickly, we realize that, and commodity prices fall – along with increasing unemployment, and contraction in economic activity. Another possibility is that global growth returns and other countries’ demand for raw materials causes inflation (because we have to buy that stuff too), but we have no growth here with the resulting stagflation.
Here it C0mes!
No matter what happens, I believe inflation, which does exist now, will really flame up in the near future. Regardless of what we do, China et al will spend to build and as they build, eat, & drive more, we will be affected. And with Bernankobama destroying our currency credibility (something Paul Volcker rates as one of the highest priorities for the Fed & Treasury), we could get inflation from TWO angles – the rise in commodity prices AND the fall in our currency.
That is what really exacerbated the oil spike last time – oil was rising but our currency was in free fall (oil did not rise much in terms of Euros- just dollars). This is a very likely outcome and is why I am favorable to strategies to protect oneself from inflation.
So here it comes! The rise in oil prices is just a taste since this market may re-correct in the short term – if not, strap your seat belts without delay and get ready for the inflation ride of your life!
Chris Grande
Pd
