There is something terribly ironic about Thursday morning's headlines. On the day that many expect the Federal Reserve to announce a new round of asset purchases, investors learned that weekly jobless claims rose 15,000 to 382,000 versus expectations of a 376,000 print. This was the biggest miss relative to expectations in eight weeks and contrary to popular belief, it shows not that we need more quantitative easing, but rather that previous rounds of stimulus have done little to create jobs and as such the strategy should be abandoned as its costs are beginning to outweigh its benefits.
On Wednesday I noted that inflation expectations are rising rapidly and warned that expectations for inflation have a nasty habit of translating into real price increases as the public's perception tends to influence its behavior. If Thursday's producer price index in any indication however, prices are rising before the consumer even enters the equation. Producer prices rose 1.7% in August, the largest month over month increase since June of 2009 as gas spiked and food costs rose .9%. Of course, CNBC was quick to point out that
"... excluding the volatile food and gas categories, core wholesale prices rose only 0.2 percent, below July's increase."
This is of course no consolation to consumers as food and gas tend to be an important part of their financial equation. As ZeroHedge so aptly puts it:
"... then again, who out there needs food or energy - inflation is precisely what Bernanke wants, the FOMC will welcome this news with open arms."
Investors also got a poignant reminder of what the so-called "smart money" thinks yesterday as it was revealed that Bill Gross sold $30 billion in long term Treasury bonds in August due largely to fears that inflation would end up chipping-away at long term bonds' fixed returns. Investors should take their cues from Mr. Gross and pare down holdings of long term Treasury bonds and reallocate the funds to gold.