Friday, June 6, 2008

STAGFLATION!

Lead by crude oil, commodity prices have exploded today. And we haven't even heard of any threat to the Gulf of Mexico oil fields due to a hurricane yet!

How ironic that this whole round of inflation was ignited by Jean-Claude Trichet's threats to raise interest rates to combat inflation! The chart here is the daily and 4 hr charts for the Goldman Sachs Commodity Index futures. Note the immense gap upward today on both time frames! This is not a common phenomenon in futures.
Meanwhile the shock of higher unemployment has sent stock indexes into a tailspin. This, in turn, is sending investors back into treasuries and forcing interest rates lower, which is pummeling the value of the U.S. Dollar (see chart above). And the falling Dollar is raising the fear of inflation even more. What a vicious circle!

Stagnating economy + high inflation = stagflation