Two New Posts on The Daily Capitalist, and Comments on President Obama's Leadership

Click HERE and HERE for the last two posts. Message of the second (more recent) one: Gold miners represent good relative value in what remains a generally overvalued financial marketplace. Message of the first one: financial stocks are pointing downward, and that has tended to be a poor portent for the economy.

I also want to comment politically. It is not clear what is motivating Barack Obama. He is maintaining a large military presence in Afghanistan. Do the polls tell him that a partial withdrawal, to a troop level that exceeds the level it was at when he took office, will win him votes?

Economically, not long ago the Senate rejected the Ryan plan with about 40 votes in favor. But it rejected the President's budget with no votes in favor.

It's not clear to me that this president is a leader. With FDR, it was clear that he (at least in posture and headline actions) favored the common man, who was a poor man in those days. With Mr. Obama, he favors the poor- but he also favors the rich, and he has turned out to be far more corporation-friendly than almost anyone expected. So he favors everyone. But he and the country are only what they are. And there are no tall aliens with the ability to serve man by making the deserts fertile. So, choices must be made. This business of trying to please all, which in my field of interest, finance, I correlate to pleasing both the stock and bond markets, simply is not working. It worked for Lula of Brazil, but that followed a prolonged period of hyperinflation. There was public and private support for conservative, growth-oriented policies. And who knows what Lula swept under the rug to get to 70+% approval ratings?

Unfortunately I am getting an LBJ-Carter feeling of a failed president. LBJ and BHO are both guns-and-butter-oriented. Both led the economy into big-time price inflation as the central bank obediently helped to monetize the resulting deficits. But no one would mistake LBJ for other than a leader. Mr. Carter, who may have been well-meaning, ended up looking unfocused and indecisive, and chose (was "forced" to) move to the right giving near-hyperinflation toward the end of his tenure. The world is not ending, and as I have noted recently, a number of headlines are overly histrionic. So what is "priced in" in the markets is impossible to know, especially given the vast amount of money the Fed has printed that has been seeping into the real economy. We do not need a QE3 for lots and lots of price inflation to occur.

Got gold? (And shares of gold miners?)

JFK Adviser Compares Afghanistan to Viet Nam

This financially-oriented blog has focused on the Pak-ghanistan war(s) because of my belief that escalation there could lead to as much inflation at home as the guns-and-butter strategy of LBJ led to with his escalation in Viet Nam. An informative, interesting and brief post has appeared by John F. Kennedy's closest adviser, Theodore Sorenson, titled America's Next Unwinnable War. I recommend it is a good read from a variety of standpoints.

Mr. Sorenson makes the case that Afghanistan is close to being Barack Obama's equivalent of Lyndon Johnson's Viet Nam.

The U. S. historically has only had significant inflation during major wars or in the aftermath of the few losing ones, such as Viet Nam.

With the entire force of government and its creation the Fed committed to steadily destroying the real purchasing power of the dollar you have in your wallet, gold cannot lose nominal value in the very long run unless they fail miserably in that goal; but gold can be a poor investment nonetheless.

If the U. S. ramps up much further in Afghanistan, and continues to bribe/coerce Pakistan to do the same internally, look for domestic price increases to exceed expectations.

Copyright (C) Long Lake LLC 2009

Comments on June CPI and General Price Inflation

The Bureau of Labor Statistics has released the June Consumer Price Index Summary.
One has to wonder about the reliability of these numbers, viz.:

 The index for all items less food and energy rose 0.2 percent in June
following a 0.1 percent increase in May.  Most components of all items
less food and energy posted increases; the indexes for shelter and medical
care rose slightly, while the indexes for new vehicles, used cars and
trucks, recreation, and apparel all increased at least 0.5 percent.  The
index for airline fares did decline in June, falling 0.6 percent.

Whether in Macy's, Nordstrom's, or specialty shops, there are significant sales everywhere. The sales are widespread enough that it would be surprising if a large percentage of final dollar sales were not being made at major price reductions. These are generally "real" sales, I believe, in that they are discounts off of ordinary prices. It is thus at best counter-intuitive for BLS to claim that apparel prices rose in June. Similarly, how plausible is it that total cost to buy a new car rose, after rebates and/or low/no interest rates on new car loans?

Yours truly recently bought some "stuff" at CVS. With payment came a $5 off slip on a purchase of $25 or more, plus a $2.50 further discount. Upon responding to this incentive to purchase more "stuff" that was going to be purchased a month or two hence anyway, the wife and I also found various sales and store brands which lowered purchase costs and from which the above discounts were further subtracted.

These questions ignore the topic of how to measure housing costs. The BLS says that the cost of housing is essentially unchanged year on year.

There are price pressures everywhere, modified by frenetic Chinese buying, the future of which is unpredictable. Sustained, major and rising inflation in the U. S. last began in the mid-1960's with LBJ's guns and butter policy. The economy can probably handle Obama butter without big-time inflation. If Afghanistan heats up substantially or another significant war appears, though, watch out.

Copyright (C) Long Lake LLC 2009