Inflation: No Longer a Notion to Be Ignored

Wednesday’s comments, though brief, were particularly relevant.

Inflation in Japan hit a 27 year high. Inflation has become an issue everywhere in the world, while economic slowdown doesn’t appear to be as bad as anticipated. That is not a good mix for lower interest rates. The consensus is growing that rates have bottomed and may rise later this year.

Wal-Mart (WMT) traded at a 52-week high of $59.95, closing at $59.78. We issued a Sell Alert on 2008-06-06 at $58.37. The stock should have been bought last September into weakness in the low 40’s and sold this week into strength in the high 50’s.

Inflation is no longer a notion that can be swept under the carpet. This has become a serious issue as central banks can no longer ignore the need to raise rates. The European Central Bank may take the lead on that and the Fed would then be in a dilemma. If they don’t raise rates immediately, then the recent gains in the $USD will be obliterated, and the US inflation rate will soar further.

 

So my thinking is that the Fed and Treasury Heads will ask that the ECB and BoE hold the line on rate increases in at least one or two more meetings, and that joint communiqués are issued wherein all central banks talk like hawks, but don’t take action. That would serve to push oil, food and gold prices lower, which is the central bankers’ main need at the moment.

I am still waiting for the bottom in gold, and believe we shall see it when oil is below $100.

On the Wal-Mart point, WMT dropped -2.11% Wednesday to 58.52. I believe the price is headed lower based on relative values in the market (although maybe not Thursday!), but I do acknowledge that the recent operating performance has been very good.

Comments

[moonbat1775]

Isn't it more accurate to say that central banks do not raise interest rates but that they quit suppressing them so much with fiat money?

[Sing Expat]

If you are waiting for sub $100 oil to buy gold, I think you can put on your slippers, make some tea, build a fire, and have nice, long nap because it isn't happening soonl. Or possibly ever.

[dink]

you wont be around to see oil below $100.00 neither will I!!
As for gold, with fiat money (USA$) mentioned on the internet as possibly as much as 14 trillion why would anyone want paper instead of gold. US dollars used to be promisory notes, for gold or silver, what can the US government promise now? Possibly 14 trillion dollars worth of vegatables (including tomatoes) and corn if any is available!

[Whidbey]

Your money talk is interesting. I think the EU crowd wants the buck revalued, and so does the Fed and Treasury, but is likely just a hope dressed up in some threats to act tomorrow. No one can live with higher rates for long. The US financial crisis is about to accelerate and when that happens bonds fall in price, gold rises and we can all forget this ever happened. But fun to speculate.