Absolut Proof of Inflation!

First, I apologize for the near week off from delivering you with your daily dose of financial education. Between the flu kickin' my ass, holiday parties (including mine last Saturday), and putting together some of the exciting announcements that will kick off the New Year, I was exhausted.

However, I do have something for you today!

Last week, as I was purchasing libations for the annual KlineClark Xmas Extravaganza Party, I noticed that the price of Absolut vodka had soared some 20% from the prior year (I noticed because the price was still on last year's bottle). Now, since Absolut is an import (from Scandanavia), so I figured that all of the imported spirits were up by approximately the same 20%. I also deduced that domestic spirits had probably risen as well, though I had no basis to figure out by how much. But here is the thing, I went home to see how sales were going for the PA Liquor Control Board, they were up by some 13% for the year. So, prices up, sales up. Makes sense since alcohol is one of those products like food and cigarettes that tend to be unaffected by economic conditions. People need to eat, and if they are not celebrating, they are drowning out sorrows.

Now, some of you may be saying that I am off of my rocker and that the meds are talking.

Well, there were 2, count 'em 2 significant economic events that you should take note from last week.

The first is the fact that WHEAT, yes WHEAT went over the $10 per bushel market FOR THE FIRST TIME EVER on Thursday at $10.09! Wheat and corn is in virtually every foodstuff in our food supply. The obvious are cereals and breads. However, remember that cattle, chickens, pigs, all form of livestock that provide us with meat, cheese, eggs, and milk products are fed with variants of corn and wheat. Unless you can survive solely on fish, veggies, and fruit, you are affected by the price of wheat which has quadrupled in the last 5 years. And food manufacturers and distributors are only now starting to raise prices in any significant amounts to notice. They are still operating on the smaller profit margins brought about by the rise in wheat and corn. Don't you think that they are going to want there big payday soon?

The second event to occur last week was the release of the CPI and PPI. The Consumer Price Index for November clocked in at 4.3% since November of 2006! That is a huge increase considering that previous months year over year inflation numbers were released at 2.8% and 3.2%. In fact, the government (we're here to help) was declaring that inflation was being kept in check! Hah! If you add in the 7% hidden inflation that the government never seems to add in, we are looking at 11.3%!

The Producer Price Index (the price that manufacturers pay) was up 7.2%! This is the largest increase in the PPI in 26 years! If you are old enough remember 26 years ago (if you are not go to the history books), it was 1981! In 1981, the country was going through the middle of a recession, real inflation rates were in double digits still as a result of the oil embargo of the early to mid-70s. The Reagan Administration was still trying to repair the economic policies enacted by the Carter Administration. The 30 Year Treasury Bond was yielding 13%, the Fed under then Chairman Paul Volcker had as its mandate to get inflation under control any way, any how, even if it meant allowing economic cycles to occur and the country to go into recession (which it did). Inflation was eventually put in check and the 1980s became one of the most prosperous decades in history!

Fast forward to today, the 30 Year Treasury Bond is yielding 4.6%, the country is in recession (even if not recognized by the Fed) and the Fed has as its mandate preventing recession at any cost. Even if that means allowing inflation to become rampant. Well, since the Fed no longer acknowledges food and energy in its primary measure of inflation (wheat quadrupled in 5 years, gas up 34.8% in a year), the Fed also cannot acknowledge the fact that we are already experiencing rampant inflation, so they can justify pumping more and more dollars into the money supply, exasperating the inflation scenario...all in the name of preventing recession. Well, if you cannot acknowledge rampant inflation, you cannot fight recession. And since you cannot fight recession, you allow it to occur. Therefore, the Fed under chairman Ben Bernanke and Alan Greenspan before him has FAILED this country and this economy!

It is time for reform at the Fed. Count everything that is pertinent to this society when measuring inflation. This includes food and energy. Place business leaders, former CEOs, in Fed seats, people who know the real impact of their decisions. Eliminate the monopoly of the Fed seats by bankers and academics.

Notes From The Underground:
Dow - 13,177.44 +10.24
Gold - 799.20 +3.90
Silver - 13.92 +0.06
Oil - 91.52 +0.89

To Your Investing Success,

Patrick

Is the Ground Full of Money?

Yes!

And it is getting more valuable!

China and India are growing far beyond what analysts ever thought...with no end in sight.

Imagine whole nations with newly minted middle class citizens larger than the United States.

Over half a billion citizens demanding all of the goods that we currently enjoy. All of these goods use minerals from the ground for at least part of their production.

Indian citizens are clamoring for gold. New roads are be paved throughout the country.

China is building infrastructure all over the country...million population cities are being built from small villages in a matter of 6-12 months, in addition to millions of new automobile drivers.

Many of the natural resources are being mined quicker than new reserves can be found, proven, and defined.

South Africa, the world's largest gold producer, is having its lowest production year since 1926.

Silver mining also cannot keep up with demand both on a consumer and an industrial level.

Copper and Lead mines are being shut down by the dozens throughtout South America because there just is no more left in the mines.

This decrease in supply along with increased demand alone can cause prices to skyrocket. Couple this with a declining dollar and prices have the ability to increase even further than they already have!

Notes From The Underground:
Dow - 13,445.20 +196.47
Gold - 797.90 -3.90
Silver - 14.35 +0.03
Oil - 87.16 -0.33

To Your Investing Success,

Patrick

WARNING: READ THIS AT THE BREAKFAST TABLE AT YOUR OWN RISK!!!!!

Well, you are reading this, which means one of two things:

Either, you listened to me and you are reading this at Starbucks with Double Dolce Latte Supremo Thingo Thingy Venti with Extra Whip OR

You did not listen to me and you are sitting at your desk reading this.

Well, if your are among those who did not listen, go ahead and READ this NOW...then PRINT it out and READ this AGAIN TOMORROW MORNING over a traditional American breakfast of bacon and eggs with toast.

Those that did not follow instructions (probably most of you ) missed out on a good breakfast, but not a GOOD ECONOMIC LESSON!

This is my Bacon 'n Eggs Economics Lesson of the Day:

Start by drinking your Orange Juice. Orange Juice is up 19% for the past 12 months AND growers expect a shortfall of 10% in this year's harvest. Have you seen the price go up in the supermarket yet?

Your Cornbread and Toast is next, slap on some butter if you need to. If you are on the Atkins Diet, don't eat, but this is important to you as an investor. Corn costs 15% more and Wheat is up 61.7% in 12 months!!! Corn is being used as a substitute for wheat in feed grain because Russia has been limiting exports on it's wheat...this tied in with the ethanol boom has caused greater demand and tightened supply for these two commodities.

You want eggs? 33.7% in 12 months. Milk? 21%. Primarily because of higher grain and corn costs to feed the chickens and cows, in addition to higher fuel costs to run the farm and ship to market.

For the meat lovers, bacon and ham prices should be seeing hefty increases for the same reasons.

We are beginning to see increased costs for our breakfast at the supermarket, but nothing near what the commodity costs have increased. When the price at market starts reflecting the commodity costs...look out!!! Is this an opportunity? Think about it and send me your thoughts.

Let me add this - as the dollar drops, our costs for these goods are going to increase, HOWEVER, these goods cost less in foreign countries where these goods are being bought with foreign currencies. Do you think that there is opportunity yet? Send me your thoughts.

NAMELY INDIA & CHINA!!!!! These 2 countries comprise 40% of the world population and guess what? The growing affluent and middle classes in these countries are moving AWAY from their traditional vegetarian breakfasts AND turning toward American breakfast foods!!!!

So, increased demand is going to have to be met with more supply & higher prices...this equals more demand for manufacturers and distributors of food, as well as equipment makers to the food and farming industry. NOW, DO YOU THINK THAT THERE IS OPPORTUNITY? Send me your thoughts.

Guns, Grub, and Ground (in this case Grub) are just as important investments in the stock market as dividend paying stocks are.

GET PAID to ride out volatility!

Volatility increased in the markets again today after recovering from a roller coaster Monday and Tuesday. The day was pretty serene for the most part with the Dow hovering just above flat. Then at the end of the day there was a 75 point sell off.

What must be remembered here is that the market has been all over the map this past month (not to mention all year) and traders are skittish about holding on to gains for very long. If they have them, they are locking them in by selling them.

On the stock front, I have a pretty easy solution to how I handle this kind of market and skittish traders in particular. One, I hold dividend paying stocks. I GET PAID TO WAIT THIS MARKET OUT!!!! I hold dividend paying stocks for the long term, I hold BIG NAMES in there respective industries. I hold stocks that are paying out at least a 3% dividend and have the financials to grow the dividend whenever they choose.

The dividend gives me the ability to reinvest in other opportunities as they spring up in this volatile market.

For example, I am actively buying I-Shares Silver Trust (SLV) to hedge inflation. Silver and gold prices have recently pulled back due to profit taking (essentially, I am taking advantage of a dip) and the brief idea that inflation (according to the government's numbers) ain't that bad.

Remember, the Fed is LYING to you when it comes to inflation. Food and energy is not included in the number. The CPI is due to come out tomorrow and we will see how much of a fib it is this month.

I am also buying silver in particular because it is selling at a great discount to gold. Traditionally, gold trades at 17x silver, so with gold at $817/ounce, silver should be trading at $48/ounce. Instead it is hovering just about $15!!!! This is a great buying opportunity for silver which in addition to being a hedge to inflation and a precious metal used in jewelry, is also has many industrial uses and is in great demand in China and India whose economies are growing by 10% a year.

So, you could be buying silver directly, or you could be buying a paper certificate that trades on the New York Stock Exchange.

Until tomorrow, which is THURSDAY.

Notes from the Underground:
Dow - 13,231.01 -76.08
Gold - 817 +19.80
Silver - 15.03 +0.46
Oil - 93.99 -0.10

SLV - 149 +0.33

Patrick

PS THURSDAY is REAL ESTATE DAY, so draw your own conclusions to the theme of tomorrows post.