Right now, I remain bearish most commodity markets. The reason
being, they simply have not fulfilled a short-term cyclical test of support.
So, more downside is possible in gold, silver, oil, and an assortment of other
commodities.
In fact, I expect we’ll soon see gold break down and plunge well
below the $1,500 level and head even lower … silver crater through $26 and drop
to below $20 … and crude oil plunge to below $70.
We’ll see food prices also get creamed. Sugar, coffee, cocoa,
corn, wheat, and soybeans. Just about every commodity under the sun is soon
going to sink further.
That’s because we’re not in the next phase of inflation yet.
Rather, we’re in temporary deflation.
Deflation brought about largely because the only money that is
moving these days is coming out of sovereign bonds and going into equities …
and because taxes all over the world are headed up, threatening to send the
rest of the capital that’s out there into hiding, rather than into business
formation or investment.
But there’s also no doubt in my mind that …Another Inflationary Surge Is Coming One Day
For one thing, nearly $4 trillion of printed money is sloshing
around the global banking system. Money printed by the U.S. Federal Reserve …
by the European Central Bank … by the Bank of Japan … and by the Bank of
England.
That money is mainly still in commercial banks’ coffers. It was
designed to bail them out. And that it did.
But because loan demand is still soft, the banks aren’t lending.
They soon will, and that money — $4 trillion worth — is likely to run rampant
through the global economy.
I know …The Federal Reserve and the other central banks are
largely following Ben Bernanke’s lead — and they all believe that when the time
comes, they can reel that excess liquidity back in, and prevent it from running
rampant through the global economy, thereby snuffing out the next inflation
surge.
But in my opinion, there’s no way the central bankers are going
to be able to reel that money back in, for two chief reasons:
1. Once the banks start to see an increase in loan demand —
instead of hoarding the money, they’re going to use it to make a slew of new
loans — which is how banks make most of their profits. And …
2. Believe it or not, the central banks don’t understand
interest rates. They think that they can raise rates at the appropriate time
and that higher rates will quell loan demand, thereby pulling liquidity out of
the system.
That might be true in a more normal economy, but in today’s
economy, it’s totally backward. Why?
Because rates are so low to begin with, as rates rise, it’s
likely to have the opposite impact: Investors and consumers will begin to
realize that rates are going up — and they are then going to want to buy more
and borrow more.
In other words, as the central banks raise rates somewhere down
the road, they’re going to see precisely the opposite of what they intended …
A Surge in Credit and Loan Demand!
I’ve been waiting for the first signs that interest rates are
headed back up again, because before they really take off, I want to buy a
second home back in the USA and mortgage it to the hilt with cheap, borrowed
money.
There are a lot more investors out there just like me. Millions
of them.
And when that anticipation of a long span of rising interest
rates comes, the $4 trillion the central banks printed will run like crazy
through the global economy, pushing up overall price levels.
So the questions then become … “When will it start?” “How high could inflation go?” “What sectors will be impacted the most and
what can I do to protect the value of my money?” And “Where can I make the most
profits?”
My answers …
First, while no one can accurately nail down when the next inflation
surge will begin, all of my indicators tell me that we should start to see
general, across-the-board price rises toward the end of this year.
Second, I do NOT believe the U.S. economy will ever see hyperinflation
as we saw in Weimar Germany, in Zimbabwe, and in a host of other countries like
Brazil and Argentina.
Reason: From a global perspective, core economies never
experience hyperinflation. Only the peripheral economies do. Even Rome didn’t
collapse from hyperinflation.
Third, the sector that will respond almost immediately will be none
other than the same sector that responded the most in the earlier wave of
rising inflation: Commodities, tangible assets, natural resources.
But don’t kid yourself on equity markets. They too will rise,
even more rapidly than they currently are, as inflation lifts equities.
Fourth, some of the biggest profits you’ll ever see in your lifetime
will come from equities in the natural resource sector. Companies that leverage
the power of the underlying commodities they explore for, refine, produce, sell
and distribute.
But again, we are not there yet. Real inflation is not here yet
and will NOT begin for several more months. Instead, deflation is still the
major near-term threat. So, as always, stay tuned …Best wishes, Larry
Source: Money
and Markets, www.moneyand markets.com, The Next Inflation Surge: When Will It
Come? by Larry Edelson | Monday, March 18, 2013.
Comments:
The current round of government overspending is much larger than Lyndon Johnson’s war on poverty and war in Vietnam and the impact should be worse. Throughout that period, you bought what you needed knowing that prices would continue to rise. The U.S. savings rate fell. This time, government is actively attacking the private sector and that will inhibit our ability to grow out of this 2nd Great Depression.
Norb Leahy, Dunwoody GA Tea Party Leader
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