Will the Fed Cut Soon?
Friday, July 20, 2007 | Teeka TiwariRating:
Today’s article is going to be brief. The U.S. stock market continues to be entertained by tales of an accommodative Fed. Where is this accommodative Fred err … I mean Fed? I haven’t seen him.
Can someone please explain to me how the Fed can lower interest rates when the value of our currency is plummeting? Where is this room to cut going to come from? The inflation numbers are warped, and so-called core inflation is apparently steady at the 2% mark. Core inflation strips out food and energy prices, though.
Look around your life. Other than food and energy, what else is there?!
Aside from mortgage/rent payments, most Americans' biggest bills are heat, electric, gas and food (credit cards too, and higher rates would be devastating for highly leveraged Americans). If that stuff gets more expensive, then you can bet it’s INFLATIONARY. I couldn't care less what some suit in D.C. says: A gallon of milk and a gallon of gas cost more today ... much more than they did a year ago.
After reviewing the most recent Fed statement, I see that they have game planned their inflation model using the assumption that food and energy prices will moderate. OK, let me make a no-brainer call here: THEY WON’T!
Global food and energy prices are slated to move higher -- much, much higher. You’ve got two billion people that are about to burst onto the global demand scene. About 300 million of those can realistically be expected to approach a standard of living that we would consider middle class. That demand is historic in scope, and will warp any so called models that do not account for it.
Sure, food and energy can go through periodic consolidation phases, and the market will point to that to support its lower interest rate dream. Just like they did when oil backed off to $55 last year. But look at oil today: It's at $76. The long term trend of food and energy prices is UP!
Don’t believe the market hype. Inflation is BIGGER than just prices moving up.
Inflation is about the deterioration of a currency’s buying power.
I’d say the multi-year U.S. dollar bear market definitely fits that description.
Inflation is much, much higher than government officials would have you believe. If you factor in the gigantic decline of the U.S. dollar’s international buying power, coupled with surging food and energy prices, the picture becomes much more grim.
What’s the plan here?
In your portfolio, over weight energy, agriculture, and metals ... BUT do so on weakness.
During any long term secular bull market, the sector will go through periods of extreme weakness, and that is the time that you want to pounce.
Right now, Natural Gas stocks have been getting beaten up, and that’s a sector you need to take a look at immediately.
You want to buy quality, and that means very well capitalized companies that have manageable debt and LARGE natural gas reserves. Use that criteria, and you will be laughing all the way to the bank.
Related Articles: Overbought Doesn't Mean Over, The Monster Under the Bed, Think Oil is the Play? Think Again.
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Teeka Tiwari
Chief Investment Officer
ETF Master Trader
