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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: c.hinton who wrote (28953)	3/2/2003 4:08:29 PM
From: patron_anejo_por_favor	Respond to of 36161

<<If inflation were to remain at 4% I would not be worried,but immagine what we may get in a few years If there is no recovery.>> First of all, you should worry at 4%...second of all, 4%?! As my main man, the Mogambo Guru sez, HAHAHAHA! From Dailyreckoning.com on Friday: The PPI for January came out, and sure enough there was the price inflation that excessive money creation always engenders. Producer Prices increased at the fastest pace since 1990. Wholesale prices jumped 1.6% The core PPI (ex food and energy), jumped 0.9%. Finished Goods were up 1.6%. Intermediate Materials up 1.3% and Crude Materials up an eye-opening 6.9%. Let's concentrate on Finished Goods, which, checking the figures again was 1.6% for the month. Like Jethro Bodine of the Beverly Hillbillies, I now cipher for your edification. Let's see, I multiply 1.6% times twelve months, and the number that pops up is 19.2% a year. Now, let's multiply the 6.9% for Crude Materials by twelve months and we get, something must be wrong with my glasses, let me just wipe them off....Okay, it says Auuuggghhhh! Code blue! Code blue! Now, before you rush to your computer and dash me off a note, relax. I am already aware that Greenspan and every yahoo that collects a government check considers 20% price inflation as tame, because they consider all price inflation to be tame, all the time. And I am acutely aware that higher producer prices do not mean that consumer prices will ever necessarily rise, as the New Era economic models are predicated on the brilliant idea that businesses can happily absorb monumental losses into perpetuity, and in fact the evidence will show that businesses will actually prosper by recording continual losses because investors love to buy the stocks of companies that lose money, and bankers love to loan new money to those companies that cannot hope to pay back previous loans. And even if they do, all you gotta do is look at a newspaper to note that a lot of debt is being bought at rates that are, in relation to rising price inflation and monetary inflation, insane. To paraphrase a schtick, "Rates so low they're insaaaaaannnnne!" I think I got a paper cut while desperately looking through my Economics 101 texts, trying to find the part where, "In response to higher inflation, bond buyers will bid UP the price of bonds, further decreasing their real, inflation-adjusted, yield." I can just see the graph in my head: along the bottom axis is "inflation rate, %" and the vertical axis is labeled "yield to bond holders, %" And the line clearly shows that as inflation soars to infinity, investors will demand a yield closer and closer to zero. I mean, this is exactly the situation with bonds right now! So it HAS to be true, since I can reach out and literally touch it, so where is that dang-blang graph? And, anyway, even if consumer prices do rise, then it will only be for those luxury non-essentials like food and energy, and since nobody needs those things anymore, therefore there is no inflation will not be tame, non-existent, nothing to ever worry about. That is why when the idea of stagflation arises, there is always a chorus of hotshots all proclaiming that stagflation is NOT here, which never fails to soothe my ragged nerves and basic gloomy nature. Hmmm. Let's see. Do we have inflation? Check. Do we have stagnation in the economy? Check. Damn! Now I'm all gloomy again.

To: c.hinton who wrote (28953)	3/2/2003 4:32:39 PM
From: Art Bechhoefer	Read Replies (2) \| Respond to of 36161

chinton--as the latest economic figures show, inflation is already here in the form of relatively higher producer prices. And remember that the latest data do not factor in the recent increases in the price of fuel oil and gasoline, nor the fuel surcharge on airline tickets, nor the surcharge on express mail, etc. As happened in 1973, a sudden increase in oil and gas prices will almost always trigger a recession or at the very least a lower rate of growth in gross domestic product. The lower growth rate leads to higher unemployment, lower tax revenues, and a worse budget deficit than already predicted. Meanwhile, as interest rates rise to reflect real inflation, the U.S. loses its appeal as a safe haven for foreign money, whether invested in equities or in bonds. That in turn puts pressure on the dollar and causes yields on government securities to increase. I can't think of a better prescription for higher gold prices. Art