Inflation Plagues Argentina Again

It is true that food makes up a bigger percentage of lower income budgets than higher income budgets. So when the krugmanites point out that we can't have inflation because food and energy don't count and then point to a weak labor market, what they're really identifying is how much the bottom of our society is harmed by gov't policies to increase inflation.

It is also true that Bernanke's policy of q.e. easing which is meant to increase asset prices, at least on a nominal basis, is really aimed at top bracket of our population, since again, the lower income groups just don't invest that much in the markets.

And we do have more inflation that official data point to. I don't see any evidence of the BLS saying airline prices have risen when they cut the level of service(removing snacks,movies,etc)

Damn it. This totally screws up my plans to buy a house in Argentina.

Argentina's inflation has nothing to do with the Fed, and everything to do with Argentina's misguided policies.

"when the krugmanites point out that we can't have inflation because food and energy don't count"

That's rich! What economists do - Big Ben, too - is look to "core inflation" as the trend, as food and energy are very volatile, & react quickly, aka they are subject to bubbles, which is what we have now. Movements like that can't be taken into account for policy making, because unlike wages, oil is now 3x more expensive than it was just 18 months ago, and it's just as likely to be down 30% in 6 months. That's why they can't develop a policy like that.

Jason, in the past you were right, but now the issue is international commodity prices, and not only Argentina, but ALL developing countries are going through the same thing: they are importing our inflation.

Current commodity price inflation is due to supply and demand, pure and simple.

'Current commodity price inflation is due to supply and demand, pure and simple'

sorry Jason,
You must be shi*ting me? You actually think this?
Please tell me you're being sarcastic.
I would hate to think you could learn to type but, not learn to read.
A monkey chained to a typewriter for an infinite period of time will eventually type all of Shakespeare's greatest works.
Q. Is your ankle chained to a typewriter?
Q. Are you hungry for a banana?

That's some powerful stupid shit you're smoking...b-careful.

I've said it before and I'll say it again.

Take a careful look at Argentina and you will see our future.
(minus the incredibly hot chicks of Buenos Aries

FG, that is actually Krugman's argument, and though I normally agree with him, he's wrong. Argentina is an agricultural country with massive reserves of natural gas. Small, with only one real city; the rest is country. Rising commodity prices should HELP Argentina, not hurt them.

Current commodity prices are due to massive amounts of money being invested in index funds, plain and simple. There's been an "oil shortage" for the past 40 years, yet they keep on sucking the stuff out of the ground. It's all BS.

No, that's totally wrong.
Commodity price rise is being driven by food shortages, increased demand from Asia and a lower dollar.
Don't blame the speculators. Quite often they are the ones that prove the emperor has no clothes, which is what happened during the housing crisis.

so no one speculated by buying real estate? really? idiot.

http://goldsilver.com/video/fed-money-printing-to-cover-bank-theft-is-leading-to-food-inflation-worldwide/

True for countries that peg to the dollar.

so, your prior comment was totally wrong?

http://www.youtube.com/watch?v=Vxho4pybPP0&feature=player_detailpage

>> (minus the incredibly hot chicks of Buenos Aries

Just to stay focused on the essentials: The dudes are hotter.

dudes are hotter for sure. and they are cheap.and friendly. and nice. and sophisticated. and dance well. and smell good.

Are they going to start killing Jews again?

Uh, the Economist says the same thing. So do the economists for BAML, Goldman, JP Morgan, and most of the other major banks. So does Moodys and S&P. Its supply/demand. Krugman is not the outlier here. The gold bugs are.

If any of that were true, jason, then the stock market would be reacting to economic and political news as it usually does. Friday the stock market should have fallen given the jobs market; it didn't. Egypt should cause oil and gold to rise, and the stock market to crash. It didn't.

Your theory is that since September 1 global demand for food has gone up 50%.

It hasn't. This is, alas, a massive bubble fueled by QEII. Shiller said it just this week; many others say the same thing.

I don't know when it will end, how high the markets and prices will go, but when the crash comes, it will be swift and hard. Goldman was recommending going long on oil when it was $140 a barrel, just before the 2008 market meltdown.

This is unsustainable, and very, very bad, damaging economic policy.

> Stock prices soaring 25% in 2 months for no reason, damn be to economic news.

Steve is just pissy that he shorted the market before that 25%.

Read this:

http://www.cnbc.com/id/41430152/

Painful as my short positions are, I'm sticking to them. Kass is right.

Read the Fed statement from August 2008, just before the massive meltdown: they said that their next policy move would likely be to tighten. Then September 2008 happened.

Greenspan made the same mistake. Bernake is facing a bubble in asset prices right in the face, political problems throughout the developing world caused by food prices, and he denies it's a problem. Greenspan is still in denial.

Remember: tulips are worth less today in real terms than they were in 1650.

the problem is we may go to s&p 1500 before we collapse

> Painful as my short positions are, I'm sticking to them

I'm taking some profits today.

i might as well be short, given how much i am in cash

i rarely short stox but for a flip in the emini--it's a matter of how long i am, or not, as is the case today

i cant believe, for so many reasons

the problem is we may go to s&p 1500 before we collapse

Urban, I've given up thinking the stock market is even remotely able to forecast the economy.
The history of the market would argue against believing its good at discounting future earnings.

Argentina is nothing like the United States. It's corrupt, highly socialized and has huge sources of natural resource wealth that have been squandered by the government. Inflation has been running higher than 10% there for YEARS, long before QE2.

For example, the country imposes a fixed price on oil of $45 / bbl in the country, but the government then purchases it on the open market at world prices, now $100 / bbl. It subsidizes gas prices at a huge cost to the government. When you have programs like this, the government has to print money at crazy rates.

Food price inflation is driven by supply shocks: large droughts, crappy harvest in the Ukraine last year, an agricultural policy in the US where increasing portions of corn are used for gasoline. Both of those issues will, over 2-3 years, likely correct themselves. More land will be planted, weather will normalize and renewable energy standards will be adjusted, which will dampen corn prices, hence pushing down food inflation worldwide. There's also demand growth from China as their economy develops they will want more meat. I think that secular trend is a good investment opportunity. Should be great for fertilizer and ag equipment companies. And I don't think you should blame QE2 for food inflation.

The governments in the Middle East are collapsing because they're corrupt monarchies / dictatorships with terrible economies. And the Egypt situation is looking like a breathtaking success. You're seeing a relatively peaceful transition of gov't in a country of 80 million people in the MidEast.

Good luck shorting the broader equity markets - yes, the market feels like a bubble, but recognize that it's the 3rd year of a presidential cycle (the market goes up ~90% of the time in the 3rd year). We have a split government, more fiscal stimulous next year. Corporate profits are up - and not just on cost savings - General Electric (great proxy for the US Economy) killed it this past quarter based on strong revenue growth. Cash balances in corporations are up dramatically - most people's personal balance sheets are deleveraged - should drive better consumer spending.

Also, there has been a notable shift in mutual fund flows from bond to equity funds. As inflation and interest rates creep upward, bond funds will suffer and, regardless of the underlying strength of the economy, you will see a rising tide in the equity markets over the next year or two.

There was a huge shift in fund flows last December when muni bonds got hammered. Expect more of that. I'd be very, very cautious holding municipal bond funds or any fixed rate bond fund right now. It's actually rather sad for people nearing retirement - they've gotten hammered in the equity markets over the past few years and likely ran into fixed income products to be conservative... and they don't realize that their bond funds can easily lose 25% or more over a short period of time if we see a run up in interest rates / inflation. Does not bode well for the Florida / Arizona real estate markets.

The Fed is sitting on $6 trillion in mortgages, most of them underwater. It really sucks for the financially responsible (low leverage) people in the lower & middle classes who not only are paying for the bailouts and stimulous packages but then have to suffer through inflation.

Bernanke won't say this but modest long-term inflation (2%-3%) and currency debasement is really the only way out of this situation. What's the alternative?

If you look at a typical basket of commodities, they are all not all up (or down) by the same percentage. None by as much as the dollar index is down.

I am on my Bloomberg now: Over the past 12 months, the dollar index is down about 5%. Beef is up 12%. Pork about 15%. Aluminum is up about 20%. Soybeans, Platinum, Gasoline, Gold, and Oil are up about 25-30%. Coffee & Sugar is up 50%. Copper is up almost 60%. Corn is up 90%. Wheat is up 80%. Cotton is up 80%. Palladium & Silver are up 100%

That means there is a 35 percentage point delta between platinum or gold and copper, and 75 percentage points between platinum or gold and the other two precious metals. There is a 65-75% percentage point differnce between the increase in meat versus wheat, corn or cotton.

Etc.

If it was JUST the 5% decline in the dollar versus the other major currencies, or the 30% decline in the dollar versus Gold, all of these increased would be similar. Yet we have increases ranging from 12% to over 100%!

Even in the same categories (metals, food) you have the percentage differences between the increases more than DOUBLE the dollar priced in gold delta and 10 times the dollar versus other currencies delta.

Ergo, its not ALL the 5%(!!!) decline in the dollar index. The VERY deltas in the deltas is clearly something else - i.e. supply/demand.

"VERY BIG deltas"

No one has a cogent counter argument?

>Ergo, its not ALL the 5%(!!!) decline in the dollar index. The VERY deltas in the deltas is clearly something else - i.e. supply/demand.

These movements are not passive, that is, the prices didn't just change because the dollar declined. These commodities have been active investment themes, so yes, it is a supply/demand issue, but to a greater extent in the speculative markets than in the spot delivery markets based on the needs for inputs.

"U.N. Food Agency Issues Warning on China Drought"

Riversider will say it's Bernake's fault.

"The U.N. Food and Agriculture Organization issued an alert Tuesday that a severe drought was threatening the wheat crop in China, the world’s largest wheat producer, and was even resulting in shortages of drinking water for people and livestock...."

http://www.nytimes.com/2011/02/09/business/global/09food.html?_r=1&hp

This is 100% due to the debasing of the dollar. No supply/demand here:

"...“China’s grain situation is critical to the rest of the world — if they are forced to go out on the market to procure adequate supplies for their population, it could send huge shock waves through the world’s grain markets,” said Robert S. Zeigler, the director general of the International Rice Research Institute in Los Banos, Philippines...."

The "debasing" of the dollar caused this corn shortage too. The Fed caused higher ethanol production and lower corn harvests. No supply and demand here!

"...U.S. stockpiles of corn before the next harvest will be 9.4 percent smaller than estimated last month, a bigger drop than expected, because of increased ethanol production, the government said...

...The price has surged in the past year as adverse weather reduced global production..."

http://www.businessweek.com/news/2011-02-09/u-s-corn-surplus-cut-on-ethanol-smaller-world-crop-projected.html

"Coffee & Sugar is up 50%"

So - demand for coffee is up 50% in a year?

There's a shortage of sugar in the world?

Bullcrap. It's all speculation. Nobody needs coffee, or sugar for that matter.

Speculation it may be in some years, but with ag futures you have to take delivery of perishables. you cannot speculate forever with items that must be delivered in months. You could STORE them, but agricultural stores are WAAAAY down across the board. So it cannot be speculation.

when was the last time you took delivery of any futures contract? orange juice? palm oil? lol
speculation is just the smart money aligning with monetary inflation. pretty simple. (and very very very lucrative).