Sunday, May 2, 2010

ON THE VERGE OF AN INFLATIONARY SURGE

I'm going to start off by stating that I don't think Bernanke is going to "get away" with the insane monetary policy he's chosen. Printing trillions of dollars, cutting rates to zero, trying to manipulate the bond market and generally tampering with the natural market forces is going to have consequences.

There is a price that will have to be paid for this madness. Just like there was a price we had to pay for Greenspan's reckless attempt to avoid a recession when the tech bubble burst. Greenspan certainly bought some time and a brief period of illusionary prosperity. But he did it by creating a housing and credit bubble. When those burst, as all bubbles do, the fallout was much worse than if we had just weathered the recession to begin with.

Ultimately all of Greenspan's and Bernanke's efforts have just loaded the nation with a monstrous debt burden that we will never be able to repay and soaring unemployment that isn't going away anytime soon.

Now I’m afraid Bernanke has probably let the inflation genie out of the bottle with his reckless actions. That means surging commodity prices. The fact that almost all commodities resisted the stock market decline on Friday is an ominous warning sign.

Both heating oil and gasoline broke out of recent consolidations on Friday despite huge selling pressure coming off the stock market.

 

 
It now looks like we've probably seen the cycle low in oil.
 


If oil follows the gasoline and heating oil markets to new highs (and I think it will) I'm afraid we are going to get a strong surge higher. And if we did just see the cycle low a few days ago this push could last some time as the average cycle in oil has been running roughly 50 days trough to trough.

Gold has also broken above the recent resistance level with follow through this time.


Gold is also early in its daily cycle so we could see a strong push higher here also. I'm expecting gold to at least test the highs during this minor cycle advance. And I'm leaning fairly strongly in the direction of a C-wave continuation for the reasons I outlined in the weekend report for subscribers.

Keep in mind that all this is progressing despite a strong dollar. Of course that is just an illusion. It really isn't possible to print trillions of dollars out of thin air and have a strong currency. The dollar just appears strong because the currencies it's measured against are exceptionally weak right now. The relentless rise in most commodity prices reveals the truth about the dollars value.

We are now on the verge of a surge (maybe a huge spike) in inflation.

I think Bernanke is about to get served notice that he didn't fix anything. All he did was create a much bigger problem. Unfortunately you and I are the ones that are going to pay for his mistakes with higher taxes and much higher inflation.

10 comments:

  1. The circumstances we are facing now are starting to look similar to 2008...some markets are starting to top out while gold and oil are continuing their rise, oil was the last thing to top in 2008.

    ReplyDelete
  2. I am not sure why people talk of Greenspan mistake and Bernanke mistake, and Bernanke being served notice and so on

    There is no mistake, all they do is by full intent and design,

    the objective is a transfer of wealth from many to few

    there is no mistake, the only mistake is the one made by those who think Bernanke (or Greenspan) made mistakes

    they just did what was in the best interest of few in order to transfer the wealth of many

    ReplyDelete
  3. If all bull markets end in manias, could Greenspan even have stopped the housing mania?

    ReplyDelete
  4. Not after he started it by cutting rates to 1% and flooding the world with money.

    ReplyDelete
  5. I think that weakness in the euro is providing some of the cover. the $ looks good compared to the euro, and so plenty more can be printed...

    this can only go on for so long, as it is akin to standing on the highest point of a sinking ship- safer than down below, but still on a doomed path.

    ReplyDelete
  6. Life is a doomed path - everything "sinks" eventually. The fiat monetary system is just following this natural path and it is going to be interesting to watch it at the end.

    ReplyDelete
  7. This Tuesday is really weird. What do you say Toby, could this be the correction you were waiting for? Or a more serious drop?

    ReplyDelete
  8. It could be the correction I've been looking for for several weeks but with this market and the massive liquidity that's floating around it's anyone's guess.

    Heck we couild turn around and be up 300 tomorrow :)

    I'm just going to stay with the secular bull and ignore the short term wiggles.

    ReplyDelete
  9. Actually never mind Toby. I just realized there is a big treasury auction tomorrow so now would be the perfect time to engineer a strong rally in the dollar/drop in gold LOL.

    ReplyDelete
  10. Big sell off but did you look at the B.O.W. #'s

    As of 3:43 the SPY was up 370

    http://i41.tinypic.com/m8k6wy.png

    ReplyDelete