Thursday, June 14, 2007

"IF" Core Inflation Is Under Control

Stocks Extend Rally After Inflation Data
Thursday June 14, 6:19 pm ET
Stocks Rally Again After Core Wholesale Inflation Shows Slight Rise

NEW YORK (AP) -- Wall Street surged again Thursday, launching the Dow Jones industrial average to its best two-day advance since last July after data showed that wholesale inflation, excluding energy and food costs, is rising at a gentle pace.

The market was unfazed by the Labor Department's headline producer price index, which rose 0.9 percent in May due to surging gasoline prices -- a bigger increase than in April and higher than economists predicted. Investors instead were pleased that the core PPI, which strips out often-volatile food and energy costs, posted a small 0.2 percent rise, as expected, after a flat reading in April.

If core inflation is under control, the Federal Reserve is unlikely to lift interest rates, a possibility that started dogging the market last week, when the yield on the benchmark 10-year Treasury note passed 5 percent for the first time since last summer.

If core inflation is under control? ...slight rise? Forget Goldilocks...this is Alice in Wonderland. Hello! Welcome to America...where bad news is good news and few economists are smarter than a 5th grader...

"The aggregate of all the statistics of the last month, except those related to homebuilding, has pointed to a stronger economy," said John Merrill, chief investment officer of Tanglewood Capital Management in Houston.

I bet this guy can't even define the word "aggregate". Forgive me for asking, but wasn't the housing industry the fuel for all of the past five years of "growth" here in America? Haven't we seen countless tales of woe for the past 9 months warning us of the growth consequences a "slowdown in the housing sector" will have on the economy? Mr. Merrill better live on an island, because I have a hunch that by this time next year his "investors" are going to be outside his door with clubs and torches. What a dumb ass. How can a supposedly responsible news service quote such obvious hogwash?

If core inflation is under control... LOL!

Dan Norcini, who's commentary on Jim Sinclair's JSMineSet website is some of the most astute, and brutally honest, found anywhere on the Internet, had this to say this afternoon:

Wheat prices continue to soar this morning with both CBOT wheat and KCBT wheat notching a “6” in front of the bushel price. One would have to have been trading grains for some time to realize just how lofty a price this is for a bushel of wheat. It is stunning! Wheat is leading the entire grain complex higher right now and we have not even yet seen a weather scare that might effect the corn and bean price this season! Should a dry weather pattern settle in over the corn belt this summer, Katy bar the door!

Again, as I commented yesterday, we are talking about the basic food supply – not specialty items or exotic foods but essentials. Consumers are going to be reeling in disbelief when these higher wholesale prices work their way into the supply chain and this is not even considering what is going to be the effect on beef, pork and chicken prices. With crude and natural gas roaring today, it is pretty safe to say that food and energy are going to provide a double hit on the American consumer this summer and unless things change quickly (which I do not see) they are going to get hit with a price tsunami all the way into the fall and winter. I am predicting that milk prices are going to reach $5.00/gallon before the year is out at some locations if corn prices move up much further.

All of these short term gyrations in the gold market associated with the ups and downs of the bond market are going to soon be eclipsed by the awful realization of an inflation beast that is about to be set loose on the public. The feds can monkey with their bogus CPI stats and massage their data all they want to but nothing they do is going to hide the truth from the public who are not quite as dumb as these disconnected elites believe. When you see polling data that a whopping 68% of the public believe the nation is on a wrong course and both the President and the Congress’s approval ratings are in the toilet in spite of record highs in the stock market, something is seriously wrong with the la-la land of illusions that these ivory tower dwellers inhabit. Rest assured that gold is sniffing this out in its own manner. While the blind hedge funds who genuflect before their black boxes upon entering their offices in the morning continue to throw away the yellow metal, astute investors and traders who can read the tea leaves for themselves are happily taking all of it off their hands.

If core inflation is under control... LOL! It won't be for long...not that it really is now.


Oil Prices Pass $67 a Barrel on Concerns About Domestic Gasoline Supplies

NEW YORK (AP) -- Domestic crude oil closed above $67 a barrel Thursday for the first time since September on continuing concerns that the refining industry is not producing enough gasoline to meet summer driving demand.

OIL has finally cracked $67 a barrel. I have focused on Oil clearing the hurdle at $67 several times here, and the potential problems it doing so poses for the Dow Index. If Oil stays above $67 thru the next "Crude Inventory Report", look for it to accelerate quickly higher from there. Then we'll see "if core inflation is under control" or if it is out of control.

CPI numbers print Friday morning. Jeeze, would it be a stretch to expect that "core inflation" in consumer prices is "under control" too?

Core Inflation, which excludes Food and Energy... For one week, keep a diary of all your expenses. Keep two lists. One for "core" expenses and one for "Food and Energy" expenses. At the end of the week divide the total Food and Energy side by the core side. I think you will be shocked at how much of your hard earned income goes to keep your belly full, your vehicle's gas tank full, and your house comfortable. Just for gasoline alone, it cost me TWICE today what it cost me 18 months ago just to drive to work every week.

If core inflation is under control... Core Inflation is a deception, a magicians sleight of hand... Gold is the ONLY true barometer of Inflation. Buy it!


Gold and Silver today continued to pursue their technical repair. Internal indicators on the hourly charts continue to show bullish divergence. The CCI eeked out a new all-time high today. The CCI is the Continuous Commodities is a much truer commodities index than the revered CRB Index because it is not so heavily energy weighted as the CRB Index. Despite the denials Inflation is becoming VERY real. And the more REAL Inflation becomes, the higher the price of Gold will go. To see a picture of the CCI go here:

Again, ...until Gold clears 655 and Silver clears 13.26 we are fishing for an interim bottom here. Gold and Silver both have proven to be excellent buys at or near their 200 DAY moving averages throughout the course of this secular bull market. Major support remains at the respective 50 WEEK moving averages for each:

Gold Support: 640

Silver Support: 12.71

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