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Inflation, Inflation, Everywhere!


Rising prices are probably better than the unknown.


I get four papers each morning-The Wall Street Journal, the New York Times, Financial Times and NY Post-and the consumer squeeze headlines are splashed far and wide. Not a shocker, given the prices from the tables to the tank, but that's not necessarily helpful when trading.

We've been monitoring this dynamic in MV for years-inflation in things we need, deflation in things we want, along with "asset class deflation vs. dollar devaluation," and while we're not lap dancers, that's why we often say the 'Ville offers financial news you need to know before you know you need it.

"Don't skate to where the puck is, skate to where the puck is going to be," as a wise glider once said, and we must approach the market in the same manner.

I was asked yesterday "How high can gas go?" The honest answer, naturally, is "as high as it wants." Gun to head however, as I said, my sense is that we're near a cycle-high. Catching cusps is a dangerous game but I, for one, am growing increasingly wary of The Phantom of Deflation.

Remember, by the time you read about it in the mainstream press the market will have long baked it into her cake.

The question I'm wrestling with is a function of path, not destination.

Will Pavlov knee-jerk stocks higher before the implications manifest?

Will consumer non-durable stocks like General Mills (GM), Heinz (HNZ) and Campbell Soup (CPB) be able to capture the sudden swoon in input costs without lowering prices for the consumer?

Are investors prepared for what a higher dollar likely means, regardless of whether it's cause or effect?

Will the disparity in price ratio between gold and oil narrow, particularly now that I've slapped on the Long GLD/Short USO bet (through options)?

I learned a long time ago to stay humble or the market will do if for you.

And I've come to find that I'm typically early on my vibes, which is as bad as being wrong if you don't have the staying power to see your bet through.

And I respect that the last gasp of denial, migration and panic typically lasts a lot longer than anyone expects, present company included.

With that said, I would be remiss if I didn't communicate to thy faithful that the devil you know, in this case inflation, is rarely as biting as the devil you don't.

Capital preservation, debt reduction, financial literacy. Tattoo them on your turret, for they will serve us in good stead for the next three to five years.


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Positions in GLD, USO
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