Subconsciously I knew the Fed was going to opt for this since they have been going down this road for 7 years but I still find it hard to believe. The dollar has now broken to new lows. In an attempt to save the markets and wall street banks the Fed has now opted for hyperinflation. The process of devaluing the dollar to inflate the markets that has been in cruise control since 01 has now gone into overdrive. We now have a front row seat to a massive explosion in inflation coming down the road. The question is simply how fast the liquidity is going to leak into commodities. We've already seen the CPI and PPI show the largest jumps in years and that's the governments version of inflation. The question as to how fast this will crush the economy is how fast and far the price of oil rises. It has already broken out of a very large consolidation and closed over $101. Platinum, Palladium and now silver are all trading parabolic. Copper is trading parabolic and most of the softs are moving up in parabolas. Gasoline has jumped 20 cents at the pump in the last 2 weeks. The Fed is now guaranteeing that the slowing economy is going to be pushed into a very severe recession.
Now how can we have a rising stock market if the economy is going into a recession? Why are stocks moving up on bad news? The answer is right there in the chart. The Fed is creating artificial demand by pumping the money supply. We aren't at the bottom of a recession yet. That's when stocks are cheap and represent good value. That's the time when real demand will come in. The current rally is soley due to massive amounts of currency being injected into the markets. It is now a race between how much money the Fed can print and how fast it will leak into hard assets.
Think of it this way. Let's say instead of paper dollars the medium for currency was sand. Well sand is pretty abundant right. You can just go out and scoop up a bucket full of it. Well if anyone can obtain as much as they want why would you sell your products at a fixed price? The answer is of course you wouldn't. If everyone has access to the beach then you are going to start raising your prices. Well in the world we live in we don't all have access to the beach but the governments do. Believe me they are scooping sand like crazy right now. The laws of supply and demand will still apply. If the Fed wants to flood the world with money then people are going to want more and more of those dollars for their real products. Here's an example that I already find myself doing. The price of gas as everyone has probably noticed is rising. I now find myself stopping even if I don't need to fill up at a station that hasn't raised prices yet. All that means is that station will run out of gas faster and will quickly be raising prices since they can't keep the tanks full at these lower prices. We see the magic of inflation at work in real life. I do the same thing at the store. Anything on sale I buy it now instead of waiting till next week when the price has increased.
Gold Miners - What next?
10 months ago