Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

The Best Way To Play U.S. Sleeper Inflation

Economics / Inflation Nov 26, 2010 - 10:48 AM GMT

By: Sean_Brodrick

Economics

Best Financial Markets Analysis ArticleLike gasoline seeping across a floor, inflation is slowly spreading across the globe, waiting to ignite. When it finally combusts, the move higher in prices could be explosive. Yet many U.S. citizens are going to be caught totally unaware because prices — for now — are generally flat and even falling.

This has opportunity written all over it. I’ll get to that in a bit. First, some facts on how the signs of deflation are around us:


Consumer Prices Are Flat. U.S. consumer inflation decelerated in October, according to the Labor Department. The consumer price index increased 0.2% in October. And the core CPI, excluding food and energy costs, was flat for the third straight month. In the past year, the core CPI rate is up 0.6%, the slowest pace on record!

Producer Prices Are Falling. The Producer Price Index rose seasonally adjusted 0.4% in October as energy prices gained, the Labor Department reported. And following 11 consecutive months of gains, core producer prices, which exclude volatile food and energy inputs, fell 0.6% on lower prices for light motor trucks and passenger cars. The core drop was the largest since July of 2006.

Housing Slump Is Getting Worse. Housing starts plunged 11.7% to a seasonally adjusted annual rate of 519,000 from 588,000 in September. That was far worse than the forecast of 598,000. And in October, Clear Capital declared they were seeing the quickest decline in home values since mid-2009, with prices dropping 6% over September and October. Looking ahead, the picture remains grim: Standard & Poor’s predicts that home prices will fall another 7% to 10% through 2011.

So it’s understandable that Americans think prices will remain flat and potentially go lower. The problem is our “deflation” is localized. Across the world, especially in emerging markets, prices are going higher.

Food Prices Soar in China. Prices for food and energy are rising across the globe. But in China, for example, the price of a basket of 18 key vegetables rose by 62.4% year-over-year in the first 10 days of November, after jumping 10.1% in October. The problem is so bad, the government has vowed to take steps to keep a lid on prices.

The State Council, China’s cabinet of ministers, said last week that it would stabilize prices for grain, oil, sugar and cotton. The last time it did this (the end of 2007), it slapped price controls on foods it wanted to control.

However, unlike past bouts of food inflation in China, there have been no major droughts or diseases to drive up prices this year. China is blaming money brought by foreigners investing in Chinese real estate, and is cracking down on that, too. But it’s more likely that as the Chinese become more prosperous, they’re eating better.

And while Beijing bureaucrats can restrict the rise in prices of food grown at home, it can’t restrict the price of food it imports from the rest of the world. China was once self-sufficient in grains, including wheat, soybeans and corn, but now has to import more and more.

Inflation Beyond China. Food inflation isn’t a problem only in China. Three of the biggest emerging markets, Brazil, India and China — 40% of the world’s population — are experiencing serious food inflation.

Sean Brodrick

And it’s not just food. In fact, Morgan Stanley recently published a chart showing that, in measures of broad consumer prices, China has the lowest inflation of any of the BRIC (Brazil-Russia-India-China) countries …

Sean Brodrick

Source: Morgan Stanley

In fact, across the emerging markets, inflation is running at around 5.5% year over year.

So why are prices rising in these emerging markets and not in the United States? It’s a combination of factors — hot money, rising wages, and scarcity of commodities which has led to very real price hikes. Costs of raw materials are rising. In fact, year-on-year inflation in commodity prices is running at 64%.

But the U.S. consumer is weak. So our suppliers in China feel they can’t pass higher prices along. That’s worked for a while — it won’t work forever.

Now for the Real Gasoline on the Fire

The Fed is purchasing trillions of dollars of Federal debt, and creating boatloads of money (even if in only an electronic sense) to do so. This has sent the monetary base skyrocketing, from just $800 billion to more than $2 trillion in a matter of months. Take a look at this next chart and you’ll see what I mean:

Sean Brodrick

The only reason this hasn’t led to inflation yet is that banks aren’t lending the money out … yet. But it’s likely that banks will start to lend more money as the economy slowly improves.

That excess cash could cause inflation to ignite — and we could see prices in this country rise very quickly.

How to Play “Sleeper” Inflation

For now, U.S. inflation is hitting the snooze button. Where do you want to be invested when it wakes up? I think precious metals is an obvious answer. And the recent pullback is giving you a big opportunity.

Here are some recent gold facts from the World Gold Council …

  • Total gold demand in the third quarter of 2010 was 922 tonnes, an increase of 12% from the same period a year ago. In U.S. dollar value terms, demand grew 43% to $36.4 billion over the same period.
  • Demand for gold jewelry increased by 8% from third quarter of last year, with four of the best performing markets — India, China, Russia and Turkey — accounting for 63% of global demand.
  • The total value of net retail investments during the quarter was a record $9.6 billion, representing a 60% increase from the year-earlier quarter. The largest contribution to total demand growth came from bar hoarding, which increased 44% from the previous year.
  • Gold jewelry demand is likely to exceed that of 2009 due to an anticipated recovery in India, the most significant gold jewelry market, and continuing strength in China.

Demand for gold obviously remains strong, and pullbacks will bring physical buyers out of the woodwork. Gold is a historical inflation hedge, and I think it’s cheap compared to where it will be a year from now.

Yours for trading profits,

Sean

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules