Tony Lepage

An excellent article on the current state of affairs.

The scenario I love to use when I am explaining inflation is one that details the dropping of millions of dollars from helicopters in order to get money into the hands of consumers with hopes of keeping the economy going. What really happens is that no one is any richer than they were before. Being at the beginning of inflation is good, those at the end of inflation are the ones who will feel the rising prices.

Well guess what? The US Government is handing out $2000.00 debit cards to hurricane survivors. The amount of debt this hurricane has caused for the US may very well prove to be catastrophic.

What’s next? The Federal Reserve will meet to determine their next move. Will interest rates go up? If the Fed stops hiking, the dollar down will go down and GOLD will go up. If the Fed raises rates, gold can still fly because it underlines the fact they are seriously worried about inflation. They can try and fudge the inflation numbers all they want but they cannot erase the reality we all see. Everything is inflating (i.e., gas, home, food and commodity prices).

The recession looming ahead has a very high possibility of materializing especially with the current high gas prices. Traditionally, a rise of $10 a barrel sparks major slowdowns. Add this to the fact the US has taken on a very large amount of debt over last months (not that their debt was small to begin with). Money wants something safe.

What is safe? Well you know what I’m going to say, and I’ll say it anyway. GOLD. (Ahem… You need to really think about this-don’t depend on a currency managed by a bunch of idiots). Depend on Gold, or even the Swiss Franc. Both very bullish investments.

What should you use to compare current investment options? Bond prices! But wait! I think that bonds are very risky right now; foreign central banks are removing support for the USD as inflation is becoming a real concern. If CPI moves from a lower 3% area to higher 4% area this will be bad for bonds. Traditionally, bonds have been good during recessions but this may not be the case this time. The whole recovery has been debt financed and a structural trade imbalance is growing exponentially larger. This scenario can lead to a horrible currency crisis with the key ingredient being a falling dollar that will drive up interest rates as the US runs into a major funding problem. This can cause a negative return on bond yields. Avoid long term bonds.

Got protectionist sentiment? Got Gold?

Oh, and did I mention that Gold broke through its December high and is back making a new 17 year high as this is being written? ($459.10 @ 2:55AM)

Watch and see HOW FAST GOLD PUSHES $500 an ounce. I think a lot of people are going to be surprised with the coming gold price action.