Inflation in a Slowdown Greg’s Note: Prices are rising as the dollar falls, and an economic slowdown has done little to stave off massive inflation. The economic policies of the central bank seem to only be making matters worse as new imports and lower production have led to overall rises in the price of many goods. Gold and Options Trader’s Ed Bugos blames the Fed’s policies and shortsightedness for many of these problems. Do you think he’s right? How can we stop the tide of inflation even while the economy enters a recession? Send your thoughts to the managing editor here: greg@whiskeyandgunpowder.com Whiskey & Gunpowder
April 30, 2008
By Ed Bugos
Vancouver, Canada
A Manic Depression
The economy doesn’t know what to do with itself. The Fed has made it all but certain that inflation will be a problem. Prices are rising and everything has become more expensive. So what ever happened to this recession we’ve been hearing about? Shouldn’t a slowing economy be depressing prices? You’d think, but the Fed has mandated some violent economic mood swings that may spell trouble down the road. The Bureau of Labor Statistics (BLS) reported another sharp increase in producer prices during March. Finished goods were up 1.1 percent and intermediate-level goods rose 2.3 percent, pushing the year-over-year rates to 6.9 percent and 10.6 percent, respectively, in the month of March — the biggest yearly increases in this price indicator since 1981. U.S. consumer prices rose four percent year over year, pushing the high end of a 15-year range. And you can bet the reality is worse than what the government data will confess. ~~~~~~~~~~~~~Special~~~~~~~~~~~~~ Have You Had Enough? Too Bad A falling dollar, check. Housing bubble bursts, check. Huge financial institutions closing their doors, check. Well at least the worst is over, right? Wrong. It’s time you realized that we’re no where near done with this trouble. Brace yourself, because there are still at least five more shocks that will lead to a full market apocalypse. Read this full report for the details… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The U.K. also reported a 6.2 percent year-over-year gain in its headline PPI. I mention it because the pound has been stronger than the greenback in recent years — but the inflation story is not just about the dollar. The buildup of inflation pressures overseas will soon be evident — when the foreign currency bubble pops.
You’re seeing a price revolution unfold before your very eyes. Media reports of truckers and consumers angry over escalating fuel prices are becoming more frequent and intense, as are the reports of riots over soaring food prices in some corners of the world. Cost inflation continues to ravage mining project economics, hampering the industry’s ability to increase production in response to higher prices.
The ultimate cause of both price inflation and the business (boom-bust) cycle lies in the constant manipulation of money supply and interest rate levels by central banks and their governments.
The economic data, meanwhile, continue to point to recession. Instead of letting the market correct the dislocation — heaven forbid — central bankers, under pressure from the electorate, are but fanning the flames with price pressures already at two-decade highs.
Working off the same defunct Phillips Curve dynamic (the consumptionist theory of a trade-off between inflation and unemployment) that formed the monetary policy playbook of the ‘70s, the Federal Reserve is hoping a weak economy will weigh down prices. Yet even using this theory, one can see that if the Fed is successful at averting recession, what will keep prices down?
There is no end in sight for this vicious cycle but hyperinflation if the policy continues.
But more relevant to the present, the idea that slower economic growth might relieve price pressures that are concomitantly fueled by monetary policy is limited by global factors that many have alluded to over the past year or two — a worldwide slowdown in the growth of the real pool of savings, a switch from mercantilism to consumption policies in developing countries and slower productivity growth.
As one economist recently put it (emphasize mine): “Past bouts of expansion have created bubbles in the financial sector, plus other sectors such as housing and state-dominated sectors like medicine and education. But a high dollar internationally, the growth of the international division of labor as well as technological advance kept the prices of consumer goods down, even falling. All these effects have been absorbed already, and the falling dollar relative to other international currencies has meant a higher price on imports. Lower productivity contributes, as well, as does the general recessionary environment. So the downward price pressure on consumer goods is at an end.”
So a contraction in production just makes the situation worse.
Tell it to the Fed. Or just buy gold. Your golden bull,
Ed Bugos P.S.: I’m not just kidding around when I tell you to buy gold. It really may be the only store of wealth that the Fed hasn’t tried to ruin over the past few years. There are a few ways to play gold and get out of troubling dollar investments and one of them is following my system. I’ve got the best way to play it that could make you huge gains. They’re called Vancouver Leapers, and you can find out about them here…
Special Editorial: The Penny Sleuth’s Jonas Elmerraji is here to share with you a special investment strategy that may be foreign to you. They’re called LEAPS, and they can be a great way to make big gains in a market full of trouble…
Leaps: An Investment Worth Jumping At
LEAPS stand for Long-Term Equity AnticiPation Securities. Like options, LEAPS are traded publicly and represent the right to buy or sell an underlying stock at a predetermined price. But unlike options, which have expiration dates measured in months, LEAPS expire in a matter of years. That means that LEAPS let investors make long-term plays long after options would have expired. As with regular options, LEAPS plays aren’t relegated to individual stocks — LEAPS are also available for major indices like the S&P 500 and the Dow, and LEAPS are also now available for sector groups. What’s So Great About LEAPS? So what’s so great about having options that last for more than one year? Well, for starters, having more time until expiration means that any movements the underlying stock makes can going to be a lot bigger than anything you’d see with shorter-term options. ~~~~~~~~~~~~~Special~~~~~~~~~~~~~ Bring in an Extra Monthly Income You could be part of a secret market that’s moving piles of cash each day. These guys are some of the smartest, most wealthy investors in the world, and they’re making big money on tried and true companies, even in a market like this. Now you can get into this market yourself for the first time ever. We’ll give you your very own “guest pass” in. Click here to pick it up… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ In other words, you’ve got a whole lot more gain potential with LEAPS than you do with plain options. Because of this, LEAPS are an excellent way to make long-term leveraged plays on most widely held stocks. Because purchasing $1 of LEAPS gives you several dollars of investment leverage, going long with LEAPS is a popular way of making bets on a stock. One of the best ways to achieve this over a longer period of time is by using “rolling LEAPS.” Even though LEAPS offer longer expiration dates than regular options, it may not be enough time for your investment to come to fruition. That’s where rolling LEAPS come in. With rolling LEAPS, you rollover your LEAPS when they expire by selling your current LEAPS holdings and buy the equivalent one with a later expiration date. Theoretically, you can rollover your LEAPS indefinitely. Remember, though that every time you roll your LEAPS over, you’ll have to pay for the new ones, meaning that if you do it for long stretches, your investment had better be going up enough to cover the cost of the LEAPS options! Like options, LEAPS are also a great way to hedge the stock holdings in your portfolio — especially the ones you’re planning on holding for the long-term. What’s Not to Love? Like most things, LEAPS don’t come without a caveat. Since they give you more time to realize your gains, it stands to reason that LEAPS cost more than traditional options do. How much more? Well, a General Electric call option that expires in May 2008 with a strike price of $30 costs $3.05, while the LEAP that expires in January 2010 costs $5.90 today. If you don’t plan out your investment predictions well enough, a few bad LEAPS buy could end up cutting into your portfolio performance. LEAPS and Bounds Ahead And even though LEAPS aren’t a foolproof investment tool, they are one that can put you “LEAPS and bounds” ahead of the competition if used well. Cheers,
Jonas Elmerraji P.S.: While LEAPS provide huge moneymaking potential, you should take a look at what these Tier Two Equities will do for you. We’re talking five and six times larger profits than regular stocks…with less risk… Read on… | 
