Friday, March 20, 2009

RE or IN But Definitely Not DE FLATION

We have been arguing for quite some time that we would see massive inflation and it seems now that a lot of money is being put into inflation trades. The Fed monetizing the debt caused the dollar to get weaker (no surprise to anyone). If you still have a deflation argument--please put it in the comment section. I can't see any argument for deflation left--whether or not you are arguing that we were having to rebuild the balance sheets, or the falling commodities, you can forget it---it is inflation.

Dennis Gartman is on Bloomberg this morning using the new buzz phrase in the Mainstream Media---GENERATIONAL LOWS. How did we go from the "bottoming process" to generational lows? I hope we are at generational lows, but I am not betting on it. Gartman is making the case for gold. Gold should break $1000 by the end of next week and continue north from there. No matter how you slice it, all of this quantitative easing and "throw in everything but the kitchen sink" Fed policy is going to cause inflation. Now you might argue--as Diane Swonk did, that the Fed will be able to contract its balance sheet faster than any other time in history---but you can't argue that we aren't headed for inflation. YOU JUST CAN'T.

I was very pleased with my picks yesterday. We are still bullish on FCX and are looking to add CVX as we believe that the oil play is back in a huge way. I know all of the counter arguments--stockpiles are still high and prices are moving into an area where OPEC may not follow through with their production cuts. No doubt we will start hearing about demand destruction, but if we see the dollar weaken it will take much much longer for demand destruction to have an impact on prices here at home.

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