Does this make sense? As I am writing this on March 15th., the Fed is beginning its 2-day meeting which will conclude tomorrow with an anticipated .25% interest rate hike- or maybe .50. In any case, it is a FAR cry from what they would need to do to have any major impact on inflation which just today was measured in double-digits for the first time since Bloomberg has been keeping track.
At the same time the stock market is rising and commodities of all sorts are being hammered lower even though the outlook for future prices couldn’t be brighter. (Do I smell major banks crushing prices so they can buy low and ride the coming wave higher?)
Why it makes no sense is that the companies that are seeing their shares rise are the ones paying the costs of rising input costs that will likely put a hurting on their profit margins going forward. At the same time those producing the goods that are costing more- and should lead to record profits are getting hammered lower.
This is similar to what we see leading into every Fed meeting. The deck chairs on the Titanic have to be lined up just right so they look good when their announcement is made. My personal take on this one is that they are likely setting this up so they can come out and say input prices are easing so we will only raise .25% rather than .5%. Of course, that is speculation on my part, but it appears to make sense.
The reasons I believe higher (and maybe drastically higher) costs are on the way are:
- Russia and Ukraine have halted exports of grains and many other necessary goods
- Argentina has halted exports of Soy products
- Moldova, Hungary and Serbia have banned exports of farm goods
- Trade routes and supply chains are being disrupted by wars and continued lockdowns
- Russia, China and many other countries are looking to bypass the US dollar in international trade which could lead to a massive decline in the purchasing power of our currency. So far, I know of China, Russia, Iran, India, Pakistan and it is appearing that Saudi Arabia is leaning that way.
- The world has been experiencing drastic weather events that have led to less than stellar harvests across the globe. There are also reports that our farmers here in the USA are having trouble sourcing fertilizer and nitrogen and, if found, the prices are skyrocketing so they may be planting crops that require less fertilizer- like replacing corn with soybeans, etc.
- There appears to be no help coming in getting greater oil production from OPEC or anyone else for that matter and the current US administration appears to be hell-bent on not allowing our domestic producers to do their jobs.
- The rising cost of fossil fuels leads to higher prices for virtually everything. Many products are manufactured with the fossil fuels and everything has to get delivered.
A friend of mine who has a large truck says that the price of fuel is up $125.00 per DAY in his business- for ONE truck.
It appears to me that the BTFD strategy should work out well here for both commodities and the companies that produce them. I believe that the hardest part of investing these days has to be the constant manipulation and distortion of all prices and having to wait for the “markets” to finally assert themselves and reveal reality as opposed to the illusion we have witnessed for the last 15-20 years.
Since all of our debt-based system values everything in US dollars (a debt-based instrument itself) I have to ask- what is the value of a unit of debt that can’t possibly be repaid if it keeps anywhere near its current perceived value? What is the value of ANY promise that cannot be kept?
Then, I have to ask what will the VALUE of gold, silver, oil, most commodities be when the paper promises are exposed for what they are- a fantasy?
I believe that the answer will stun most people. Don’t let that be you!
Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
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