I think I'll go back to sleep...

There's an old joke about a man who falls into a coma, and finally wakes up 100 years later.  Remembering he had a bank account with $10,000, he goes to the bank to find out what happened to his money.  Low and behold the balance is now over $10, 700,000.  Ecstatic, he withdraws $1,000 and leaves the bank.  Wanting to plan his next steps, he stops for a cup of coffee.  He is shocked out of his good mood when the cashier says "That will be $2,150 for the coffee, please".

Markets are recovering around the globe.  The valuations of securities are reflecting the efforts of managers to control costs and do more with fewer resources.  Governments, meanwhile,  have done little to control their costs.  In fact, they've spent more and expanded both their fixed and variable costs.  To do this they've borrowed more money, expanding the money supply far beyond its normal bounds.

All that paper money is now finding a home.  It's moving into commodities and equities, seeking fungible assets that reflect value magnified by liquidity, or lack thereof.

Yes, the major stock indices are up 65 to 90%.  But crude oil is up 165%.  Food commodities are up 50 -100%.  Residential real estate is not rising much, if at all due to the lack of demand (check the unemployment rate) and stagnant personal income levels.  Emerging market countries are growing much faster than the US, and their appetite for resources is voracious.

Inflation is very much like a tsunami:

• Starts with a violent shift or upheaval (banking crisis).

• Initial movement is underneath the surface (consumers don't experience the 1st price increases).

• Covers great distances and large areas.

• Becomes overwhelming as it approached the mainland and large populations.

• Engulfs everything as an irreversible series of waves.

The inflation wave is on its way, and we will feel its effect for the next one to three years.  Since it is unstoppable, prepare now to survive.

• Commodities will do well - pick what you're confident in.

• Get out of long term bonds, unless you can hold them to maturity.

• Figure out who makes money when inflation is high.  (I'll have more on this subject in future blogs).

Summer Oil


I've suggested the price of crude oil would rise going into the summer.  It's up 3 to 4 dollars since then, and looks to move up more in the near future.  Odds are still good that we'll see $90 - 95 before the July 4th holiday this year.


Till next time,


The Instigator