Monday, December 17, 2007

Surge in Gasoline Prices Pushes Consumer Inflation Higher While Economy Slows
Friday December 14, 7:15 pm ET
WASHINGTON (AP) -- Led by higher gasoline prices, consumer inflation shot up in November by the largest amount in more than two years.

In a troubling juxtaposition, the rise in inflation is coming at a time when economic growth is slowing sharply under the weight of a steep slump in housing and a severe credit crunch.

"We are in store for a period of very weak if not recessionary growth and uncomfortably high inflation," said Mark Zandi, chief economist at Moody's "People are going to get hit with both a weaker job market and having to pay more to fill their gas tanks and buy groceries."

It's called STAGFLATION, and it is absolutely Dollar negative, and Gold positive. In speech Sunday night by former Fed Chairman Alan Greenspan, Mr Obvious said that "stagflation" -- simultaneous inflation and economic slowdown -- is a possibility, given last week's data showing spiking consumer prices. I guess now that the messiah has spoken, people will begin to listen?

There are four important data points released today. All should be Dollar negative, much as all of last weeks cost and inflation headlines were. These data points are The Current Account, The Treasury International Capital (TIC) flows report, the National Association of Home Builders is scheduled to release its housing market index, and The NY Empire State Manufacturing Index.

Not one iota of news in the past ten days has been Dollar positive, unless you believe the spin: "higher inflation will stop Fed interest rate cuts". Look, if you have been short the Dollar, long Gold, and/or long stocks just because the Fed may continue to cut interest rates you are a fool. The Dollar is going to go down no matter what the Fed does from this day forward. The Fed has completely lost control of the interest rate markets and the Dollar. The only thing holding the Dollar up right now, today, is year end short covering AND European Central Bank intervention. The ECB is desperate to take some of the strength out of the Euro to save the regions export markets. The US Fed is desperate to prop up the Dollar. A lot more was talked about at last weeks "big meeting" than the Fed/treasury sending a few billion Dollars across the pond to help increase liquidity in the European banking system in a feeble attempt to lower the LIBOR rate.

The fact is, Gold has risen in a rising Dollar environment before, case in point, the second half of 2005. Gold is under pressure today, because of this Sucker's Rally in the Dollar. Silver is testing critical support on the back of Gold's "perceived" weakness. This Sucker's Rally in the Dollar is within hours of a complete reversal. Stick to your convictions! If you have the resources, buy more of both Gold and Silver at these Holiday Sale Prices.

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