The Great Depression Online

Great Depression Online Archive Issue:

The Great Market Caper

Great Depression Online
Long Beach, CA
December 14, 2010

Inside This Issue You Will Discover…

*** Credit Market Revisited
*** Inflation’s Coming
*** The Great Market Caper
*** And More

Credit Market Revisited

Treasuries got whacked again last week.  By the time it was over 10-Year Notes yielded 3.29 percent.  For reference, when Bernanke announced his plan to use debt to buy $600 billion in government debt back on November 3rd, 10-Year Notes were yielding just 2.56 percent. 

Apparently the bond market’s not cooperating with the Fed Chairman’s wishes.  We suspect the rapid 28 percent increase in borrowing costs is keeping the man up at night.  So how come, even with the massive Federal Reserve purchases, Treasury yields are going up?

Bill Gross, The Bond King, explains…

“Check writing in the trillions is not a bondholder’s friend,” Gross wrote in his monthly investment outlook on Oct. 27.  “It is in fact inflationary and, if truth be told, somewhat of a Ponzi scheme.  It raises bond prices to create the illusion of high annual returns, but ultimately it reaches a dead end where those prices can no longer go up.”

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As we mentioned several weeks back, we believe the credit market’s reached a dead end of sorts…we called is an inflection point.  And that now Forces More Powerful than the Federal Reserve are at work.  If that’s true, then the cost of borrowing money may never be this cheap again in our lifetimes.

What this means is that for the next 20-to-30 years, credit prices will be increasing.  Between now and then, we suppose, the consumption driven economic model will dwindle.  But first, in addition to increasing credit prices, rising price inflation will run wild too…

Inflation’s Coming

Economist John Williams of Shadow Government Statistics ( tracks the consumer price index using the methodologies in place in 1980…prior to all the government adjustments and deceptions.  Not surprisingly, the CPI that Williams calculates is much higher than that of the Bureau of Labor Statistics.

According to Williams the CPI is at 8.5 percent whereas the latest report from the BLS has the CPI at 1.2 percent.  For those of us who wear clothes, eat food, and put gas in our cars, the CPI provided by Williams is much more reflective of the real world.  Year to date cotton’s up 100 percent, coffee’s up 47 percent, corn’s up 41 percent, and crude oil’s up 9 percent.

No doubt these commodity price increases are only just beginning to make their way into the real consumer prices we pay each and every day.  Unless commodities crash very soon these price increases cannot be evaded.  Inflation’s coming.

Additionally, Federal Reserve money pumping is determined to push prices up.  Remember, Bernanke’s solution to the deflation he fears most is inflation.  He wants inflation and he wants it bad.

Regrettably, he may get both…

The Great Market Caper

Markets are embarking on a great caper.  The first stop on this new adventure is inflation.  Here are some ideas for what you can do about it…

Here at the GDO we view physical gold bullion coins as the ultimate wealth protection…as insurance against a complete currency catastrophe.  So while gold is often viewed as the ultimate inflation hedge, over the next six months you’ll likely do better investing in agriculture and energy.   

Assuming you’ve already buried some gold coins in a coffee can somewhere it may behoove you to consider moving some chips into the PowerShares Multi Sector Agricultural ETF (DBA).  As we stated last Friday, since June 1st it’s up 30 percent.

Another commodity that should benefit from the burgeoning wave of price inflation is natural gas.  After the financial crisis in 2008 and economic weakness that followed, natural gas prices have remained soft.  But that looks to be changing. 

After dropping below $3.50 per MMBTU in late October natural gas is now up over $4.40 per MMBTU.  One way to tap into rising natural gas prices is the First Trust ISE-Revere Natural Gas Index ETF (FCG).  Since late-August it’s up over 28 percent…and it could go much higher.

The point is, through a succession of heavy handed government intervention into the economy the stage has been set for an epic inflationary blow off followed by an equally epic financial crash.  If you think 2008 was bad – when oil prices spiked over $140 per barrel and wheat prices rose 130 percent just before the whole financial system blew apart – you ain’t seen nothing yet.


M.N. Gordon
Great Depression Online

P.S.  These are merely ideas for your consideration…and there are many more out there.  But rest assured there’s a developing tsunami of price inflation headed towards our shores.  Now’s the time to set the sails to the wind and hang on for the ride of your life.  And we have just the way for you to do this.  For a limited time our friends at Casey Research are offering a 2 for 1 Holiday Special – when you subscribe to BIG GOLD at $79 per year you get a FREE one-year subscription to Casey’s Energy Opportunities.

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