|August 28, 2009|
Hey… have you noticed the "SH**" beneath the masthead above?
It's been there since we started the new format. We wanted to write "Wall Street without the Bullshit." But someone was concerned that people would be put off by it. So we decided to test it.
People often mistake inflation with its effects. They think that inflation means "prices going up." But it doesn't. Let me explain…
Inflation is when the supply of money expands faster than the growth of goods and services in the economy. When there are too many dollars chasing too few goods and services, prices rise.
So, by definition, massive inflation has already arrived. The question is: when will the wave of monetary inflation show up in the prices we pay?
"It already has," says IDE natural resources analyst, Rusty McDougal. "Take a look at the stock market. And look at how the financial companies have soared. That's where the new money shows up first. It's only a matter of time before consumer prices start to rise."
But at some point, the "velocity" of money will increase. Prices will too. And Rusty points out that the banks don't even have to lend money for the devastating effects of inflation to hit.
"Right now, the Federal Reserve is buying Treasury bonds to finance the deficit. And they are trying to do it undercover, so the public is unaware. The goofs running US economic policy are sacrificing the dollar to keep selling Treasury debts. But something has to give. Mark my words. This will lead to a crisis."
A trillion here, a trillion there… what's it really mean?
In the 1960s, during a debate over government spending, Illinois Senator Everett Dirksen famously said, "A billion here, a billion there -- pretty soon, you're talking real money."
I'll take two of whatever he's having…
Most experienced investors are scratching their heads over the market's rally from the March lows. What has it been built upon?
This recovery is built on shaky ground, nothing I would consider a solid base for an extended growth period in the markets. Now is a time to be fearful. It is a time to be protective of your profits.
Speaking of shaky ground… On Monday and Tuesday this week, almost 40% of the share volume on the NYSE was comprised of Citigroup, Bank of America, Fannie Mae, and Freddie Mac.
These are not exactly pillars of financial strength. Fannie and Freddie are bankrupt for all intents. And Citi is still hovering around $5 a share, with shaky prospects. And as we mentioned on Tuesday, the overall volume has been declining for several months. That these four companies make up such a large percentage of the volume is concerning.
The latest "this doesn't sound right" number coming out of China is their estimate for inflation.
The official estimate is that price inflation will be 2% for 2009. Andrew Gordon, our value expert who follows China closely, almost jumped out of his chair reading the report.
You can make money betting on China though…
It didn't take long for the iPhone to become the most popular cell phone in the U.S. A large touch screen, thousands of applications, and the "cool" factor have all driven sales.
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