Tuesday, February 12, 2008

What Inflation?

The Commodity Research Board's index is at an all time high. Notice

-- The index has continually risen since the beginning of 2007

-- In the latter part of 2007 the index made a clearly bullish pattern of higher highs and higher lows

-- The index broke through the previous high

While the index sold-off in mid-2006, that was mostly due to oil's sell-off at the same time which had more to do with Goldman rebalancing its indexes than market fundamentals.

And investors are clearly thinking inflation is going higher

The gold market rose from 2005 to mid 2006. From mid-2006 to mid-2007 the market clearly consolidated. Since then, the gold has rallied. Gold has doubled in price over the last three years.

So -- why do I harp on commodity prices?

1.) If I hear one more person or economist (who should damn well know better) tell me about core inflation I'm going to throw up. If someone can show me a vast majority of the population doesn't consume food or energy, then I'll convert.

2.) Consider this from the last inflation report:

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in December before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The December level of 210.036 (1982-84=100) was 4.1 percent higher than in December 2006.

Now, consider this from Bloomberg:

Most interest rates are below 0% after adjusting for inflation. That's what got us into this whole damn mess in the first place. Additionally, with interest rates this low, we stand a chance of letting inflation get out of hand -- as in we'll need another Volcker like interest rate hike to get out of it. I don't want that and I don't think anyone else does either.