The Fed keeps saying there’s no inflation …
The Fed keeps telling us prices will stay subdued for several quarters …
The Fed keeps promising to keep interest rates pegged to the ground for years …
But those Fed Fantasy-Land forecasts are crumbling before their very eyes.
Look, anyone with half a brain knows inflation is far worse than the half-baked numbers the government spits out. But now even the official figures are going ballistic. Just look at the details of this morning’s Consumer Price Index report …
Food prices alone jumped 0.5 percent, the most in 34 months! Eggs are up by more than 10 percent … bacon will cost you 15.3 percent more than last year … and oranges and tangerines? They’ve jumped more than 17 percent in price. Hope you’re not at risk of scurvy!
Prescription drug costs have jumped 3.6 percent from a year ago, while the cost of a hotel room has risen more than 5 percent.
Airfares are up a staggering 5.8 percent from April, the biggest monthly jump since July 1999.
Car insurance will cost you 4.8 percent more than it did in May 2013.
And airfares? Fasten your seatbelt! They surged by a whopping 5.8 percent just from April, the biggest monthly rise since July 1999.
The “core” CPI that excludes food and energy prices jumped 0.3 percent. Not only was that up from a 0.2 percent increase in April, it was the single biggest monthly increase going all the way back to August 2011!
Core inflation is now running as hot now as the Fed originally forecast it to be in 2016. Just like they’ve gotten everything from the housing bubble to the Internet boom wrong, it looks like they’re whiffing badly on yet another forecast here.
Personally, I’m sick and tired of the apologists out there who defend the Fed’s ridiculously easy policies. They are not helping the real economy; that’s slowly improving on its own.
“I predict the Fed will actually start raising short-term interest rates as soon as early 2015 … and maybe even by the end of this year.”
But they are inflating massive asset bubbles in things like ultra high-risk bonds and risky stocks.
They are fueling the biggest bubble in investor complacency since 2006-2007, right before the last market crash.
And they are completely out of step with the world we live in now, versus the crisis-era environment in 2008-09.
So you want an audacious forecast? You want to know what all my years of following the Fed tell me will happen next?
I believe the Fed could easily ramp up the pace of QE tapering to $15 billion a month from $10 billion at the conclusion of tomorrow’s meeting. They have more than enough justification to do so. If not, they’ll likely strongly hint at such a move at the next meeting set for July 29-30.
But I’ll go a step further. Last summer and fall, I predicted that the Fed would start tapering QE before the end of the year — at a time when most of Wall Street didn’t expect the first move until well into 2014. Sure enough, they started tapering in December.
Now, I predict the Fed will actually start raising short-term interest rates as soon as early 2015 … and maybe even by the end of this year. They’ll be forced to do that to combat excessive complacency, and the emerging inflation threat.
That should be bad for bond prices, but good for the dollar, particularly against the euro. That’s because our central bank is clearly ahead of the European Central Bank in the monetary policy and economic cycle, just like the Bank of England.
At the very least, hotter inflation figures could prove to be the spark that ignites a new volatility fire. So I’m looking to dial down on risk, raise some more cash, and tighten up stops here.
What about you? Is inflation an emerging threat — or one you’ve been dealing with for a long time? How do you think rising prices will impact Fed policy or stock and bond prices? Are there certain sectors that you think will benefit from higher inflation? Which ones will get hurt? Please do share your experiences and insight here.
|OUR READERS SPEAK|
The unsettled situation in Iraq persists, with pitched battles between ISIS militants, Shiite militiamen and Iraqi government forces continuing to rage to the north of Baghdad. Opinion over what we should or shouldn’t do also remains divided among Money and Markets readers.
Reader George S. said the invasion was “One of our greatest blunders ever” and added that “After we trashed Iraq and got rid of Saddam, two of the most likely outcomes were an ongoing civil war in Iraq and/or Iraq becoming an ally or a puppet of our great enemy, Iran.”
Meanwhile, Reader Tom said: “As long as America has a weak novice for president we will be challenged in every corner of the globe. The United States did not ask to inherit the role as the leader of the free world from the British at the end of WWII. It just happened. We cannot abrogate our responsibilities but those responsibilities do not necessarily include military intervention in every conflict. A solid believable American foreign policy is crucial to world stability.”
But Reader Elizabeth M. said some form of limited intervention may be necessary at this point: “It was obvious to me that we should never have taken out our complete military after making so much progress in Iraq. Our policy has always been to leave soldiers there to keep the peace even as we draw down. Why can’t those terrorists be dealt with from the air as they move along prior to their entry into Baghdad?”
Again, this is a fluid situation with constantly shifting front lines. So please continue to share your thoughts on the latest developments right here.
|OTHER DEVELOPMENTS OF THE DAY|
At least one question came in about the Medtronic-Covidien merger, and how tax implications factor into the decision by Medtronic to launch its $43 billion bid. This story provides a bit more background that should prove helpful.
The Wall Street Journal tackles the issue we briefly touched upon here a while ago – namely that record amounts of Americans are renouncing their citizenship! The government’s increasing effort to find assets held by Americans abroad is a primary reason for the exodus.
Meanwhile, shares of visionary Tesla CEO Elon Musk’s other company — SolarCity (Weiss Ratings: SCTY, D+) — surged after the rooftop solar installation firm bought up Silevo, a maker of solar panels. It also announced plans to build a large solar panel plant in New York to expand its manufacturing capacity.
Yesterday was a heck of a day for my two World Cup teams — Germany and the U.S. The Germans dominated from beginning to end, while the U.S. fought a gritty battle against its prime nemesis … ultimately pulling it out in the waning minutes of the match. Can’t wait to see how the weekend showdowns in our “Group of Death” go!
Reminder: You can let me know what you think by putting your comments here.
Until next time,