Folks, the Producer Price Index and the Consumer Price Index numbers came out this week. The PPI was a little hotter than expected, and the CPI was up slightly and right in line with the target. These numbers are telling us a story. Inflation is here, folks! We’ve got a global debt threat, the end of QE2 and food and energy making parabolic moves. The genie is out of the bottle!
And yet, the Chairman of the Federal Reserve, Mr. Ben Bernanke, still refuses to see it that way. He thinks that inflation is under control. I have to wonder: has he filled his tank lately? Has he been to the grocery store? By stripping out food and energy and only looking at core inflation, I think he’s making a gross miscalculation. He’s drawing from his theories and employing them as his strategy. That’s dangerous.
The reason that using a theory as a template scares me is that we don’t know what the consequences will be. We haven’t lived through them. QE2 is nothing more than a profound experiment, literally ripped from the pages of a textbook—a textbook that Bernanke wrote!
Mohamed El-Erian, the CEO of PIMCO, has been a voice in the wilderness about this—and people, he is spot on. I assume that he’s Muslim based on his name, but I’ve still taken to calling him John the Baptist. I hope he doesn’t mind. El-Erian used an analogy that, with apologies, I’d like to relate to you.
Think of us, all of us Americans, as being in a plane that’s caught in a storm. There’s this amazing turbulence. The seatbelts are fastened and the oxygen masks have dropped. All of us in the cabin, we assume the pilots know what they’re doing. But all of a sudden the cockpit door swings open and we all catch a glimpse of the pilots. They have perplexed looks on their faces and they’re madly banging away at the instruments because they’ve never seen readings like this before. They don’t know what they’re doing!
As I’ve talked about before, the only time we’ve seen documentation of a safe landing after a storm this severe is from 1932-1952. The Keynesians destroyed the value of the dollar and we inflated our way out of the Great Depression and WWII. And the ancillary effect of that was asset prices rose tenfold across the board—stocks, commodities, everything. I’ve shown you before exactly what happened to the Dow just from 1932-1939.
Hard evidence. A real story. Just like the ones this week’s CPI and PPI numbers are telling us. Inflationary pressure that’s being driven by demand, combined with an ongoing global growth story. It’s Growthflation, folks—this is not the time to be on the sidelines!
A couple of things before I go:
First, I’ll be appearing on CNBC this afternoon at 12:50pm ET. Tune in if you can, and I’ll get the video up as soon as it’s available.
Second, the OptionsXpress trading education workshop is tomorrow! I’m heading down to Charlotte as soon as the markets close. If you haven’t signed up for the FREE simulcast, do it now! This is FREE knowledge, people!