Kicking the can on inflation

I recently wrote about rising interest rates ahead, with unpredictable results on world currencies.
People may start to run to variety of wealth preservation schemes as the USD valuation starts to come under assault.   One of those stops will be precious metals / hard assets but this won't last.
The final end game has to be a new paradigm as technology has broken everything else in the wealth storage game.  Some sort of crypto type thing will be the answer, in my 2011 post "Ideal form of Money - Power to the People."


The question is however, why will there be inflation?  We are producing more than ever, at a lower cost, and people simply do not have the disposable income they did 40 years ago.

So if we are under-employed, with lower disposable income, inflation should be impossible!

One of the slight of hands in economic classes is they use 1 word to describe an effect (inflation) and simplify the root cause as one thing.

What we have seen the last 20 years is a variety of efforts to kick the can in rising costs on natural resources.  If we took on renewable energies aggressively, what I am about to describe would be much less of an issue.  However, USA thinks pressing on with solid fuels is the answer, and we will have to learn the hard way.

I wrote previously about peak oil, and how it was real.......until fracking emerged as acceptable.  Fracking did in fact kick that can, NICELY!   But the long term low-cost viability on fracking over a decade is much worse than traditional oil drilling.  The net means we will run through the 'cheap and plentiful' fracking sites quickly.  Once we exhaust the can-kicking option fracking will enable oil to get more expensive per barrel.

More expensive oil will force all costs to rise, and some cost (like shipping) could really accelerate those costs.  But fear not! Before fracking we dreamed up Ethanol as a way to kick the can!  What this gimmick did is set a floor for ALL FOOD must cost MORE than the profit of selling Ethanol as a fuel source.   Which means when oil prices rise, we will plant more Corn to make Ethanol, which will cause other crops to become more expensive as they must be equally profitable as Ethanol!

Unfortunately, in 2018 we are about to unleash yet another reason to force food prices to soar.  Marijuana is threatening to become legal.  Once it does, USA farmers will have yet another crop that maybe more profitable than food, Marijuana.   So food prices must be equal to profit of Ethanol and Marijuana.

Technology is advancing with vertical farming, but that in itself is more expensive than farming.  The good news is it will help put a ceiling (but lagged) on food prices.

Americans will see accelerated costs in food, energy, debt payments (interest rates), and falling house equity.
If only we could have seen this coming back in 2008 financial crisis, the world could have avoided these energy shell games.
Time to get this party started!

Heart of finance just had its first scare in 30 years

I wrote a few times back in January 2009 that the REAL crisis is not the stock market, but risk to Bond interest rates.  Then I wrote post in 2010 "Bonds, Cost of borrowing the heart of all finance" calling out when US 30 year bonds interest rates go above 30 year downtrend, we will enter a new world not since the 1970's, a rising cost to borrow.

Well, we finally broke this recently, as graph below shows:

Our economic model is based on debt, and for 30 years businesses and people could borrow and expect LOWER payments 2, 10, 20 years later.  In 2018, this expectation has shifted to higher rates for decades ahead.

I expect in the year ahead a new world financial crisis to start to emerge, as the debt based society can no longer 'roll debt forward' with lower costs.   I also expect FINALLY the Precious metal sector to get a boost, now that bitcoin has taken it on the chin.   I do expect however when precious metals soar, when they break, the action for rest of my life will be in the cryptocurrencies.   I do think precious metals have one more act in them before being retired from the global economy as nothing more than expensive rocks.

I expect USD valuation is where it will get strange, as our global economy has always judged health of fiat currency against other fiat currencies.    If I am right about interest rates, and fiat currencies are the main value store for next 30 years, then I would expect USD to keep rising and rates must rise to 'break the fever" of USD trading higher, like Volcker DOUBLED US interest rates overnight in March 1980 from 10% to 20%, producing the extreme graphs above and below.

Imagine today, with so many Americans citizens and companies rolling forward debt dependant on the kindness of 30 years of lower rates experiencing such a spike in rates!
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I am making NO predictions except one, what the world knows as the 'right and wrong' things to do in the financial markets since 1982 is out the window.   Companies that have been stable for decades may wake up in deep trouble in the year or two ahead.   While we can have issues sooner, I expect this party to get start really cooking in the year 2020, USA next presidential election.

In the near term, I am watching a 2 year and a long term indicator for the world markets to enter a bear market.   Things look like a double top and we are about to hear the Bear roar.  But until the charting has confirmation, act with caution for a Bull or a Bear.  The 2 year indicator will mature October 31st, so clarity should come in late 2018.

See NEW related post on inflation.

Good luck!
Keep eye on GDX, GDXJ, and new markets such as 'Alternative Crop' stocks!