Wednesday, May 17, 2006
Inflation Concerns Roil Markets
A check on what is moving the markets this morning. "Stocks plunged Wednesday after a stronger-than-expected rise in consumer prices intensified Wall Street's fear that interest rates will keep climbing. Investors were disappointed by a Labor Department report that its consumer price index swelled 0.6 percent in April, topping forecasts of 0.5 percent. But core CPI, without food and energy, also gained 0.3 percent, ahead of economists' prediction and adding to worries that soaring oil prices have begun to lift prices elsewhere."
"'The CPI data really kicked the market in the teeth today,' said Ken Tower, chief market strategist for Schwab's CyberTrader. 'So the question now really is where can we find some support?'"
"The prospect of higher interest rates hurt bonds, with the yield on the 10-year Treasury note surging to 5.17 percent from 5.1 percent late Tuesday. Last Friday, bond yields reached a four-year high of 5.19 percent."
"The dollar's retreat could propel inflation since more of the U.S. currency will be needed to purchase foreign-made goods. 'The dollar has depreciated quite sharply since the Fed started talking about stopping its rate hikes,' Tower said. 'It's not so much that the dollar is depreciating, it's the speed of the depreciation that is worrying the currency market. The dollar is down 6 percent in one month, which is a lot.'"
"Gold futures eased Wednesday as the US dollar rose on data showing a rising rate of inflation. 'While investors are still keen to enter what remains a firm bull market long term, the short-term risk remains to the downside as heavily leveraged funds appear keen to lock in profits,' James Moore, an analyst at TheBullionDesk.com, said."
"Fueling the latest pressure on gold prices, the dollar rose against the yen and euro Wednesday, after a hotter-than-expected consumer-inflation report reignited speculation the Federal Reserve will keep lifting interest rates."
"Gold for June delivery fell to a low of $686.30 an ounce on the New York Mercantile Exchange, before closing out the day down $1.10, or 0.2%, at $691.80. It touched a high of $712.50 earlier in the session."
"Gold wasn't the only metal that retreated from earlier highs. July silver shed 30 cents, or 2.2%, to close at $13.24 an ounce, closing at its weakest level since late April despite an earlier peak of $13.74. June palladium rose $6.10 to close at $383.10 an ounce; July platinum finished up $13.50 at $1,316.40 an ounce."
"'The CPI data really kicked the market in the teeth today,' said Ken Tower, chief market strategist for Schwab's CyberTrader. 'So the question now really is where can we find some support?'"
"The prospect of higher interest rates hurt bonds, with the yield on the 10-year Treasury note surging to 5.17 percent from 5.1 percent late Tuesday. Last Friday, bond yields reached a four-year high of 5.19 percent."
"The dollar's retreat could propel inflation since more of the U.S. currency will be needed to purchase foreign-made goods. 'The dollar has depreciated quite sharply since the Fed started talking about stopping its rate hikes,' Tower said. 'It's not so much that the dollar is depreciating, it's the speed of the depreciation that is worrying the currency market. The dollar is down 6 percent in one month, which is a lot.'"
"Gold futures eased Wednesday as the US dollar rose on data showing a rising rate of inflation. 'While investors are still keen to enter what remains a firm bull market long term, the short-term risk remains to the downside as heavily leveraged funds appear keen to lock in profits,' James Moore, an analyst at TheBullionDesk.com, said."
"Fueling the latest pressure on gold prices, the dollar rose against the yen and euro Wednesday, after a hotter-than-expected consumer-inflation report reignited speculation the Federal Reserve will keep lifting interest rates."
"Gold for June delivery fell to a low of $686.30 an ounce on the New York Mercantile Exchange, before closing out the day down $1.10, or 0.2%, at $691.80. It touched a high of $712.50 earlier in the session."
"Gold wasn't the only metal that retreated from earlier highs. July silver shed 30 cents, or 2.2%, to close at $13.24 an ounce, closing at its weakest level since late April despite an earlier peak of $13.74. June palladium rose $6.10 to close at $383.10 an ounce; July platinum finished up $13.50 at $1,316.40 an ounce."
# posted by Ben Jones @ 12:20 PM 
Comments:
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In a lot of nations around the world, how much the currency has exchanged up or down is fairly common knowledge. How many US citizens know they took a 6% paycut in the last month?
If the Fed were serious about inflation (which I don't believe they are) they'd impose greater than 1/4 point raises. Clearly these hikes are ineffective as the dollar has been losing value during this entire rate-tightening period. Inflation is only beginning -- and IMHO its rate will continue to exceed the Fed's remedial "gestures".
To impoverish the middle class is never a good idea, for they're the backbone of our economy and society. To make them drunk with illusion and debt isn't a good idea either.
Now the hangover of all that liquidity starts to make us hurt.
The party is over and hard times begin.
Now the hangover of all that liquidity starts to make us hurt.
The party is over and hard times begin.
How many US citizens know they took a 6% paycut in the last month?
The same number that realize they've lost 50+% since 2000.
Ben, on your blogs you've managed to assemble quite a group. Intelligence, experience, wisdom & (most of all) awareness. I'm thinking you ought to call your group "BENSA". ;-)
The same number that realize they've lost 50+% since 2000.
Ben, on your blogs you've managed to assemble quite a group. Intelligence, experience, wisdom & (most of all) awareness. I'm thinking you ought to call your group "BENSA". ;-)
I assume we are bullish long term here,but like many of you I didn't jump out last week even after my gut told me we were in for a correction....Inflation numbers are up ,and still metals are suffering a bit...especially my silver stocks. My gut says "chill out as they will snap back. Still, any feedback from you guys? I read,
safehaven, dailyreckoning etc,and most say we are just starting the bull run...Other traditional sites say we are in a bubble?..Where are your blue chips? Waiting and holding tight...
safehaven, dailyreckoning etc,and most say we are just starting the bull run...Other traditional sites say we are in a bubble?..Where are your blue chips? Waiting and holding tight...
BBC,
Stay the course... the fundamentals haven't changed, and the direction is clear. Oh, and keep reading everything...
Stay the course... the fundamentals haven't changed, and the direction is clear. Oh, and keep reading everything...
It's all BS, since it doesn't account for inflation. Same thing with the Dow nearing it's record high. Sadly, most Americans are clueless.
p.s.: John in VA, did you see my long response to your "What do you think?". TAG -- you're it!
p.s.: John in VA, did you see my long response to your "What do you think?". TAG -- you're it!
My argument is that inflation can't be concealed any more and will continue to show up in the data, forcing Fed to raise rates. BB's true color will show at the June meeting. I bet my dollar that he is a swing.
Smart money will drive around looking for places to park. And it will change from lot to lot, quickly.
Volatility in all markets will go up. The general trend, though, is continued inflation till something really implodes.
First NASDAQ, then Mortgage lending, then commodities. What's the next one?
Smart money will drive around looking for places to park. And it will change from lot to lot, quickly.
Volatility in all markets will go up. The general trend, though, is continued inflation till something really implodes.
First NASDAQ, then Mortgage lending, then commodities. What's the next one?
John in VA,
Good stuff. Damned if we don't agree on quite a few things!
OIL: Yes, definitely agree there's a significant speculative premium. Given Iraq, Iran & Venezuela, plus the omnipresent fundamentalist threat in Saudi Arabia, I doubt that the risk premium will go away before Peak Oil rears its ugly head. Another factor to consider, too -- Oil is priced in USD, but the USD has declined significantly against the Euro. OPEC (among others) is not at all unhappy with the higher prices offsetting the devalued dollar and is not above managing the supply to preserve their purchasing power.
CHINA: Some say they'll be hard-pressed to avoid a full-scale revolution should the US have a tough recession. Still, they've built up massive foreign reserves and are signing resource contracts for decades out. If TPTB there do survive, don't count'em out... their make-work programs would be HUGE.
[Note: Things that scare me... Troubled governments always pick fights to distract their people. US vs. Iran? China vs. Taiwan?]
INFLATION: Yes, there's true inflation at work in addition to price inflation. IMHO, I see rates increasing regardless of what Bernanke does, but I also see rampant money printing. Total fed credit keeps expanding, no? Global competitive devaluation is still at work, too.
Will rate increases take the wind out of speculative sails? To some extent yes, but I'd expect equities and debt instruments (especially Treasuries) to take the big hits. Stocks won't be attractive in a depression, and bonds won't be attractive in a rising rate environment with persistent underlying inflation. Investment dollars won't go away, they'll just be more selective and demanding and employ less leverage. Lots of leverage is necessary when borrowing Yen to buy Treasuries, for example.
------
So far, our discussion appears to be centered around the effects of inflation vs. speculation. IOW, will inflation drive PMs higher or reduced speculation take them down?
IMHO, PMs are very unique commodities in that they thrive when all else suffers. I believe inflation, instability, economic depression and the inevitable downfall of the USD all bode very well for the PMs. In fact, I expect the smart money is anxiously anticipating this eventuality and has been positioning itself appropriately. Even governments are re-evaluating their gold reserve policies. Yes, speculation tends to spice things up a bit, but the trend is still up, because global conditions are still headed down.
Actually, I'm counting on speculation in the PM endgame. Once the world's problems become obvious, the rush will be on, and everyone will want in on the act (both out of greed and fear). By that time, I'll have gladly traded my coins for their stocks, real estate and other hard assets... and be set for life.
Of course, to buy into all this you have to believe (as I do) that we're headed for a depression and a USD collapse. What's your take on the future?
Good stuff. Damned if we don't agree on quite a few things!
OIL: Yes, definitely agree there's a significant speculative premium. Given Iraq, Iran & Venezuela, plus the omnipresent fundamentalist threat in Saudi Arabia, I doubt that the risk premium will go away before Peak Oil rears its ugly head. Another factor to consider, too -- Oil is priced in USD, but the USD has declined significantly against the Euro. OPEC (among others) is not at all unhappy with the higher prices offsetting the devalued dollar and is not above managing the supply to preserve their purchasing power.
CHINA: Some say they'll be hard-pressed to avoid a full-scale revolution should the US have a tough recession. Still, they've built up massive foreign reserves and are signing resource contracts for decades out. If TPTB there do survive, don't count'em out... their make-work programs would be HUGE.
[Note: Things that scare me... Troubled governments always pick fights to distract their people. US vs. Iran? China vs. Taiwan?]
INFLATION: Yes, there's true inflation at work in addition to price inflation. IMHO, I see rates increasing regardless of what Bernanke does, but I also see rampant money printing. Total fed credit keeps expanding, no? Global competitive devaluation is still at work, too.
Will rate increases take the wind out of speculative sails? To some extent yes, but I'd expect equities and debt instruments (especially Treasuries) to take the big hits. Stocks won't be attractive in a depression, and bonds won't be attractive in a rising rate environment with persistent underlying inflation. Investment dollars won't go away, they'll just be more selective and demanding and employ less leverage. Lots of leverage is necessary when borrowing Yen to buy Treasuries, for example.
------
So far, our discussion appears to be centered around the effects of inflation vs. speculation. IOW, will inflation drive PMs higher or reduced speculation take them down?
IMHO, PMs are very unique commodities in that they thrive when all else suffers. I believe inflation, instability, economic depression and the inevitable downfall of the USD all bode very well for the PMs. In fact, I expect the smart money is anxiously anticipating this eventuality and has been positioning itself appropriately. Even governments are re-evaluating their gold reserve policies. Yes, speculation tends to spice things up a bit, but the trend is still up, because global conditions are still headed down.
Actually, I'm counting on speculation in the PM endgame. Once the world's problems become obvious, the rush will be on, and everyone will want in on the act (both out of greed and fear). By that time, I'll have gladly traded my coins for their stocks, real estate and other hard assets... and be set for life.
Of course, to buy into all this you have to believe (as I do) that we're headed for a depression and a USD collapse. What's your take on the future?
RE: COPPER
Read an article a while back that stated China's copper reserves rivalled that available in world markets, and that they could make or break the price on a whim. Anyone have opinions on why they haven't done so, if only to lower future acquisition costs?
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Read an article a while back that stated China's copper reserves rivalled that available in world markets, and that they could make or break the price on a whim. Anyone have opinions on why they haven't done so, if only to lower future acquisition costs?
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