Tuesday, May 08, 2007

Cost Of Living

Notice that the headlines are coming more quickly now?

This story isn't news to anyone who drives a car.

According to the USDA, milk prices in New York rose 20 percent last week.

Live in New York City or Westchester County? You'll want to know about this.

This isn't exactly news (and it's more than a bit simplistic) but the presses at the Federal Reserve are running full bore right now. Every hint of weakness in the economy or financial markets is being monetized away, partially because we need to pay for Iraq. This drives up the price of everything, including stocks. Remember, a nation's stock market almost always rises when its central bank inflates; the performance of the U.S. market in the 1970's was the exception and not the rule. Zimbabwe has the world's highest rate of inflation. Wondering how its stock market is doing? Take a look. For those interested, here's a longer post I wrote on this dynamic. Note: betting against this can be even more dangerous than not understanding it.

Of course, the ultimate tells are here and here.


Blogger Tony said...

Great to re-read the Mark Gleich Mark post from last November.

One other factor to add to the mix: the absence of investment opportunities besides US dollar-denominated stocks.

If one has a 401(k) through, say, Fidelity or Vanguard, 90% of the investment options are in mutual funds holding predominantly US company stocks. Even the "gold funds" are stock funds that buy shares in US dollars.

For the average investor, where are the "hard assets" that are referenced in the Fergusson's redux of 1920's Germany? This seems to "feed the beast" as hourly workers keep shoveling money into their US stock index funds.

Stocks denominated in foreign currencies? What asset class is immune to the liquidity-induced inflation?

5/08/2007 6:29 AM  
Anonymous Anonymous said...

"According to the USDA, milk prices in New York rose 20 percent last week."

Someone on Giulianni's staff better let him know...in case the question pops up again.

5/08/2007 8:25 AM  
Anonymous Anonymous said...

ummmm...gold. Not gold stock...gold. Silver too....Canadian resource stocks as advised by Doug Casey...not a bad option either. I've made an absolute killing the last two years.

5/08/2007 3:05 PM  
Blogger Tony said...


I agree, and I do have some gold (GLD) in my taxable brokerage account.

The point I'm making is that in a 401(k) account through an employer, which for most Americans is the only retirement fund they have outside of the Treasuries in Social Security, the options are very limited.

Fidelity offers a Select Gold Fund, but it is made up of gold mining stocks. Likewise, the Natural Resource Fund is not "hard asset", but rather a stock fund with a lot of US energy companies, among other things.

This merely leads to every wage-earner in the country blindly dumping a portion of their savings into some stock fund, and most of the fund options are US stock funds that track some major index, such as SPX, Russell 2000 or NASDAQ.

Result: adding more froth to the bubbly markets.

5/08/2007 8:42 PM  
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As the international value of the US dollar continues to decline it artificially increases the value of the stock market by inflating the value of foreign assets held by American companies. When the American dollar begins to recover on international markets the value of the American will make an unexpected, by most people, decline.
If we godless foreign heathens were smart we would be out madly purchasing American stocks just the strengthining of the US dollar could increase their value by 30 or 40 %

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