THE OBVIOUS IS OBVIOUSLY WRONG

UNCOMMON COMMON SENSE
For People Who Think

Aubie Baltin CFA, CTA, CFP, PhD.

THE OBVIOUS IS OBVIOUSLY WRONG

"A government that robs Peter to pay Paul can always count on Paul's support." -- G.B. Shaw

"All problems come from the fact that people don't understand money." -- John Adams

SO WHAT ELSE IS NEW?

All we have been hearing from Obama, Bernanke and Geitner lately is the steps that they will take to prevent deflation; the Government's current favorite "Straw Man." So it was interesting to note that the Producer Price Index for July was reported to have gained more than 4% year over year; which as we all know comes from a source that always, intentionally, understates inflation. We are also aware of some serious price drops as well, but most price decreases are the result of innovation and productivity improvements such as Computers, TVs and Cell phones etc. that have been declining in price for 20 years. On the other hand, sugar, grain and most commodity prices are soaring toward records highs as world demand expands due to the increasing living standards in the booming developing nations: Which has also pushed up the cost of a broader range of products, including rice, coffee, cocoa, as well as non-edible products, such as cotton, which also have been soaring in price. Doesn't this sound a lot more like INFLATION than Deflation? Lets not forget about the Hard Commodities like Copper, etc.

On the other hand, by sifting through all the misinformation coming out of Washington, it looks like we will most likely be using the latest vernacular; a Double Dip RECESSION before the end of the third quarter. After all, the revisions are in, (after the Elections) it will probably be determined that there never was any real recovery and that all we really had was a Dead Cat Bounce.

STAGFLATION

It seems more probable that we are headed for the worst of all possible situations, a period of Stagflation, which is an entirely different world from Deflation. My most logical expectation is an ever increasing QE2 and a rapid deleveraging of both the public and the bankrupt States. Even though nobody seems to know what, in words, is actually unfolding, business and the public see it coming; why else would they be "hoarding" so much cash. Investing in Treasuries given today's yields is a fool's game unless Capital Preservation is of the prime importance. That also makes sense in light of companies such as IBM who do not need any money, yet are nevertheless borrowing $ billion's at 3% for 10 years just because they can........read on