This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Bernanke is now between the “rock” of recession and the “hard place” of the soft dollar, with economic growth slowing and core inflation at 0.3% and rising. The Fed historically wants a core inflation at +0.2%, giving an annual rate of +2.4%, which is considered “price stability”. A rate of +0.3% puts us in the +3.7% annual rate zone, well above the Fed’s comfort level.

Should this trend continue, this is a worst-case scenario of slowing growth and rising inflation. In that case, there’s nothing left for the Beard to do but pray (but those puppy-dog eyes will not get you anywhere):

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

The continental landmass, the bugs, inflation…

Supermarket till slips show the price of chicken rose more than 236,000 percent to 15 million Zimbabwe dollars ($3) per 2.2 pounds between January 2007 and January 2008. Scarce eggs rose by 153,000 percent in the same period. One of the lowest increases of about 64,000 percent was on sugar, bringing independent estimates for overall food inflation to about 164,000 percent.

Of course, the inflation rate ex-food-and-energy is probably only 2% :P

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Look at this chart of the S&P 500 for the last three years:

Looks pretty good, right? Well, here it is compared to the Euro / Dollar cross:

Meh. New highs it ain’t. What about compared to Crude Oil?

GAH! How about Gold?

Wow.

Now, we can argue how relevant gold is to the world these days as a proxy for money, but it’s the same all over whenever you try to plot stock prices relative to any real asset. In terms of paper assets (like Dollars, Euros or other fiat money) we’re going gangbusters. In terms of real assets (like oil and gold, but pick your favorite), things don’t look as good. This is how I reconcile the recent price rises in stocks with the underlying economic weakness and the potential for a recession. Bernanke’s got the DollarCopter flying high and dropping $$ on the world. I believe that we are seeing depreciating “paper” assets finding their way into real assets: good companies and commodities. The prices for these things quoted in dollars are rising accordingly–more money chasing fewer (or the same amount) of goods. I believe Uncle Miltie said it best:

Inflation is always and everywhere a monetary phenomenon.
–Nobel Economist Milton Friedman

The 2000 stock bubble popped and flowed to become the housing and credit bubble, and is now flowing to real assets everywhere. Private equity and even governments of the world are buying assets hand over fist, though it did slow some during the subprime scare this summer. Where does it stop? Who will be the bagholder? You, the paper-currency wielding slack-jawed proletariat, unless you own some real assets. Buy wisely!

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Prospectus first alerted me to a chart that illustrated that although the dow may be making new highs, in actuality, it is not as strong as it looks when you account for the declining dollar. Check out his comment when I made this post. Corey expounds on the idea, and its a very interesting read. Is it possible that the rise is because of the declining dollar and inflation? Its definitely a possibility that must be considered.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com