"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Friday, June 14, 2013

Early Signs of Inflation?

Two different numbers out today are indicating the very early signs of inflation. Whether this is the start of the long-awaited result of the Central Bank money printing policies is unclear, but nonetheless, it needs to be noted.

The first of these was the PPI (Producer Price Index). The other was the Reuters/U Michigan 12 month Inflation Forecast and their 5 Year Inflation forecast. Granted the latter is a forecast whereas the former is an actual measurement but the big thing to take away from all this is that the mantra: "There is no measurable inflation" has been one of the biggest problems for both gold and especially for silver.

The PPI number for the month of May was an increase of 0.5% over April. Analysts had been expecting a mild 0.1%. It was the first increase in the PPI in three months.

The U of Michigan 12 month forecast was +3.2% while their 5 Year forecast was +3.0%.

We should note that once the University of Michigan numbers came out, silver, which was already bouncing higher today on the heels of the PPI, recaptured the very important technical chart level of $22. If it can hold those gains into the close, it will have dodged a major bullet.

I want to see how crude oil closes this week as it was the component of the PPI (energy prices) which saw the big jump. Thus far crude has been unable to breach $100 having only briefly punched through that level last September before fading. If it does, and this is unclear right now, it is going to be very difficult to keep gold under pressure.

Traders are going to want additional proof that the PPI was not an aberration before they get nervous about inflation but at least their complacency over this issue might have gotten a bit of a nudge. Interestingly and noteworthy I might add, the bond market seems utterly indifferent to both sets of numbers with the long bond jumping a full bond higher in a counter intuitive move. There are still a lot of cross currents with all the liquidity flows occurring right now that are clouding the looking glass making it difficult to get a really good read as to what exactly is the current thinking in the marketplace.

I have been consulting my magic 8 ball and asking it questions but the answer it is giving to all my queries is the same - "DUGH?"

Stay tuned.


  1. good letter; nobody has a clue if they are honest; trying to trade fx or fx spreads nearly impossible unless one does not need to sleep; Yen I think is the key and could rally even further, possibly to 117 futures; grains are toast as you can see; people look at DX and do not understand how weak SA currencies are; have a good wknd, steve in sparks, nv

  2. Heh, Bernanke has "jawboned" the CRB Index and gold so far down at this point, he's probably worried about deflation right now.

    Funny how these central bankers work.

    Anybody remember how Trichet single handedly kicked off the biggest Euro crash in history in November 2010 when he started screaming about inflationary pressures? FXE tanked from 151 to 118 in less than 90 days.

    Then Uncle Abe talks about mandating a minimum 2% inflation target and the FXY crashes from from 127 to 94 in less than 90 days.

    Yet with both central bankers talking out of one side of their mouth about "inflation", Bernanke has been talking out of the other side of his mouth, constantly threatening to "Taper", which has caused one of the biggest CRB Index slides since 2008.

    That is the miracle of today's central banking.

    Currencies can be destroyed in order to boost exports.

    And at the same time, inflation is non-existent, at least as measured by the CRB or CCI.

    Arthur Burns and the central bankers from the 1970's must be looking at Bernanke in utter awe.

    Bernanke has been able to perfect the "Pie-Hole" strategy of managing virtually any market he wishes, in the direction he wishes.

    So the lesson is that Bernanke's "Wash, Rinse, Repeat" cycle for the CRB Index is still used as an integral part of the "Pie-Hole Policy Tool". He's crashed the CRB index so far now, it will be easy for him to say something to let it rise a little.

    Once it is near the top of the range. The Dow will be at 17,000 or higher. A 17,000 Dow will have consumers jumping for joy, spending money, and business confidence will be emboldened and higher bank borrowing could take place to create the famous "Fractional Reserve Stimulus".

    Of course, that always gets inflation going a little, which is exactly what Bernanke wants, so he can eventually bait and blowtorch the CRB speculators once again by unleashing yet another "Tapering" speech to send the CRB back into freefall again.

    And the the meantime, the Fed-sponsored and TPTB-supported sectors like consumer discretionary names will sail through the huge bouts of currency and commodity with ease.

    And the hated gold stocks will be bouncing up and down so wildly that only the most rabid gamblers will be left to play in that sector.


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