Stagflation: So Obvious Even a Caveman Can See It
Data points to higher prices, lower growth.
This during the same week oil, various food commodities and the Goldman Sachs Commodity Index (GSCI) hit new all-time highs, again. I continue to feel quite comfortable in expecting more and more inflation and much higher gold prices.
Although with respect to gold, I continue to expect the gold shares to recover much faster from the March correction than gold. In fact, some of the gold miners are already hitting new all-time highs, like Metallica Resources (MRB).
The herd in the U.S. (as well as the Federal Reserve) continue to live in denial. That's a recipe for much higher inflation and much higher gold prices going forward. The defiance has become so extreme people are now even trying to claim the Fed could be "tough" on inflation by either talking more about it or "only" easing 25 basis points at its next meeting April 30th. These claims echo of similar sentiments that last month's "mere" easing of a whopping 75 basis instead of 100 basis points was somehow being "tough" on inflation.
You can't get a little bit pregnant. And once you're pregnant, saying you're "monitoring" the pregnancy closely or that you might use contraception at some point in the future doesn't change the fact that you're still pregnant!
The fiat dollar-based monetary system is breaking down right before our eyes after years of abuse from Alan Greenspan's Fed. The confidence Paul Volcker inspired in the dollar with sky high interest rates has been slowly eroded after years of easy money from Sir Printsalot. That confidence is now all but gone, and it's not something that can easily be reacquired.
The Fed has been easing while commodity inflation has been roaring. The fragility of the financial system and the asset inflation-dependent U.S. economy will prevent it from raising rates for a long, long time. Real interest rates are negative, and they'll stay that way for awhile. We saw the same movie to a lesser extent in the 1970s, and the remake is going to be even worse.
Oil goes into everything. Higher energy prices eventually feed through into finished goods. We're already seeing this in food prices, which are spiking and triggering food riots all over the planet.
The financial system is broken, yet credit growth continues to explode as the Fed provides a "put" to the entire financial system to try and keep it functioning. M3 growth continues to accelerate and is now running at close to 20%, according John Williams. That's unheard of.
The Fed has made it quite clear it will print money, bend laws, and "do whatever it takes" to keep the system functioning. And there's only one way for the financial system to survive given the enormous amount of debt overhanging the system: A dramatic increase in inflation. It's already happening right before everyone's closed eyes. Even yesterday's Beige Book had "stagflation" written all over it. I recommend reading the report in case you missed it.
The market seems to get it. Note the equity groups that continue to outperform the rest of the market in this stagflationary soup we're in: oils (XLE and OIH), materials (XLB), and the gold miners (GDX).
What do all these groups have in common? They all benefit from more inflation! Even a caveman can see it.
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