With oil rising to $109.72 per barrel, a new record, this morning before falling back somewhat, the rapidly rising specter of inflation can not be denied. I see headlines like this on Marketwatch.com this morning:
Fed Turns On the Spigot of Money Again
I see such headlines, followed by this as the first sentence of the article:
The Federal Reserve and other leading central banks announced further steps Tuesday to flood dysfunctional credit markets with enough money to get them working again.On dictionary.com, the definition of inflation is:
| 1. | Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to DEFLATION). |
This definition suggests the influence of monetary policy (volume of money) as the cause of inflation. It's a good definition because it clearly states both the cause -- volume of money -- and the consequence -- loss of value of currency. Obviously, there are additional variables, like supply, demand, and geopolitics, but the primary influence, especially in a world where crude oil and gold are priced globally in U.S. Dollars, is an overabundant money supply. This headline should make anyone shudder, after seeing the impact of Fed monetary policy on inflation over the past few months.
While other commodity prices have moderated slightly over the past week, grain and some softs prices have surged higher once again, and appear to be poised to continue higher still.
The stock markets were initially pleased as punch at the latest Fed "trick", as the above website called it, but at the time of this writing, that initial gain has now been sliced in half! I suspect that, like past Fed dog and pony shows, this one will last only a day or two also. The current rally may have even been caused by short covering after the market opened, in which case the market will likely sell off during the day, as investors realize that the Fed's latest "fix" (another marketwatch.com term) is just that -- a temporary "fix" for a credit-addicted Wall Street. It stops the shaking, but only temporarily, just like a quick "fix" of heroin stops the shakes for a drug addict -- temporarily. And just like with a heroin addict, larger and more frequent credit fixes will become more and more necessary to save the economy, until the victim hits rock bottom -- or worse.
While I personally hold no positions of any kind in the stock market or stock indexes at this moment, I empathize with those who do. When the Fed intervenes repeatedly during the hours when the stock market is closed, as they always do (acting always before the market opens) creating fools gold rallies while investors can't take any action to defend or remove their positions, these Fed "tricks" become cruel jokes indeed. This is one reason why I hold no stock or stock index positions, except long and short-term ones (day trading), and am reluctant to take one. I get the message, Fed! But if we believe in free markets, doesn't that also mean (Fed and/or government) intervention-free also?
Fortunately, in the futures markets, I can quickly exit a position when the Fed acts, due to futures' near-24-hour trading schedule, but I have sympathy for people who are locked into a position until the stock markets open one hour after the Fed intervenes with its latest "magic trick" fix . There is a cruel hidden message from the Fed to investors not to short the market or the Fed will punish you by acting to hurt you while you are defenseless (ie., while the market is closed). Is that not a cruel trick? Again, I get the message, Fed!
Chick Goslin, in his book, "Trading Day By Day", mentions the constant government interventions into the stock market as a risk to anyone who shorts the stock market. What a great way for the Fed to keep propping it up and ensure perennially higher stock markets. And is that not the very definition of a bubble?
The Fed is the worlds greatest -- and worst -- illusionist, both at the same time! Cheap tricks!
