Inflation Gap!

Never before has there been a greater gap between the meager inflation the government is recognizing and the surging prices you can see with the naked eye!

Since the early 2000s, the cost of buying a home has more than doubled. Health care costs, college tuition, and insurance premiums have gone through the roof.

The $1.39-per-gallon price tag for gasoline, which we once thought was shocking, is now an antique. And the prices of nearly all commodities are exploding all around us.

In the last 12 months, gold has jumped 39%. Silver has leaped 63%. Copper has rocketed 67%.

And just in the past three weeks, those rises have suddenly gained momentum, blowing away multi-decade records … catching Wall Street off guard … making Washington squirm.

Yet, shameless officials everywhere continue to swear on a stack of bibles that inflation is “under control.”

How do they get away with it?

The government’s math is so convoluted it would make Enron’s crooked accountants blush in shame.

For example, if a product jumps in price but the bureaucrats decide that its “quality improved,” they’re actually allowed to claim the price fell. Never mind the fact that the cheaper, unimproved models are no longer made or sold!

Worse, they have totally ignored the surging cost of homes and condos, substituting instead the low cost of renting equivalent housing.

Then, they factor in those artificially lower prices — the prices that nobody is actually paying — into the consumer price index, announcing that inflation is “under control.”

Another gimmick: They strip out all items that are going up the most, like energy. They focus attention on the remaining “core” items. Then they convince everyone that the so-called “core inflation” is the only inflation that counts.

Month after month, the Federal Reserve’s Open Market Committee has pushed this spin. Month after month, they met in Washington to gauge inflation and decide what to do about it.

And each time, they came out saying that inflation was “tame as a lamb,” sticking stubbornly to that script even after real inflation fears began to swell in their own minds.

But the inflation animal they talked about was one thing. The inflation monster lurking in the shadows was another.

Alas, why is it that the last to recognize the stench of inflation are always those in government who do the most to create it?

They spend money they don’t have. They borrow money they can’t pay back. Then, to finance their folly, they run money printing presses they can’t control. And all the while they tell us we have “nothing to fear”?

Last week, though, after many long months of denial, the Federal Reserve finally began to realize their earlier analysis was not passing the smell test.

In their official post-meeting statement, they noted a shift taking place in the way natural resource prices were flowing through the economy. And they implied the shift is starting to hit the fan: The surging cost of commodities — not just energy — may now be feeding inflation after all.

But admitting is one thing. Taking action is another. And last week’s meager quarter-point hike in interest rates, the fifteenth so far, still doesn’t cut it.

If it did, crude oil wouldn’t have surged to nearly $67 per barrel immediately after the hike. Gold wouldn’t have reached $594 per ounce on Friday. Silver wouldn’t have smashed clean through the $11 barrier. Copper wouldn’t have gone berserk to the upside.

In fact, despite all the King’s horses and all the Fed’s rate hikes …

Nearly All Natural Resource
Prices Have Been Leapfrogging
Each Other to Ever Higher Levels

Earlier, energy was leading the way, as the price of crude oil jumped by leaps and bounds, driving inflation higher.

Then, it was the turn of basic materials like copper to jump the most, another big inflation driver.

And now, precious metals are starting to catch up fast. Silver, for example, which was lagging a bit behind copper in terms of its 12-month gains, is now up almost as much.

Meanwhile, gold has completely shaken off its February-March correction and is following silver skyward.

Next to leapfrog higher: Crude oil.

The immediate reason:

New Gusts of War Now Blowing from Iran,
OPEC’s Second Largest Oil-Producing Nation

Just this weekend, the Washington Post has broken the same story I detailed for you here three weeks ago. In their article datelined April 2, they wrote:

“As tensions increase between the United States and Iran, U.S. intelligence and terrorism experts say they believe Iran would respond to U.S. military strikes on its nuclear sites by deploying its intelligence operatives and Hezbollah teams to carry out terrorist attacks worldwide.

“Iran would mount attacks against U.S. targets inside Iraq, where Iranian intelligence agents are already plentiful, predicted these experts. There is also a growing consensus that Iran’s agents would target civilians in the United States, Europe and elsewhere, they said.

“… terrorism experts considered Iranian-backed or controlled groups — namely the country’s Ministry of Intelligence and Security operatives, its Revolutionary Guards and the Lebanon-based Hezbollah — to be better organized, trained and equipped than the al-Qaeda network that carried out the Sept. 11, 2001, attacks.”

Earlier, on March 13th, here’s how I explained it in the Money and Markets issue entitled “Stealth War“:

“[I]n the days ahead, you’re going to hear more about an organization that most Americans never knew existed: Al Quds [a division of Hezbollah].

“Unlike al Qaeda, al Quds is not a nationless, renegade band. It’s a highly organized strike force now operating in Iraq under the control of Iran’s elite Revolutionary Guard.

“And unlike al Qaeda, al Quds doesn’t have to beg for refuge or financing. It gets all the protection it needs on Iranian soil … and all its funding from the Iranian treasury, which, in turn, is liberally lubricated with oil money.

“For about two decades, al Quds has been operating in Lebanon, providing military guidance and support for terrorist attacks against Israel, especially those carried out by Hezbollah and other Islamic terrorist organizations.

“For many years, al Quds has also been operating as an elite international hit squad, responsible for political assassinations in Europe and the Middle East.”

No matter how you describe it, the conclusion is the same:

Pre-war Iraq had no weapons of mass destruction; today’s Iran is plowing ahead with a nuclear bomb.

Pre-war Iraq had little or no contact with al Qaeda; today’s Iran is the world’s largest sponsor of international terrorism — and has been for over two decades.

Pre-war Iraq had no missile firepower to speak of. Today’s Iran, in contrast, now has a versatile, high-tech missile, the Fajr-3, said to be capable of carrying multiple warheads and evading modern radar systems. And this is not old news. Iran just tested the missile successfully this past Friday, March 31!

For investors, this has far-reaching implications. It means that, while the U.S. has been struggling mightily to secure oil reserves in Iraq, the far greater threat to the world’s oil supplies has been right next door, in Iran.

And now that all this is finally being recognized, the mad scramble for scarce oil supplies is about to begin anew:

Major oil consuming nations, fearing the worst, are going to start stockpiling more oil.

Major consuming companies, worried about higher energy costs down the pike, are going to step up their buying in the futures markets to lock in today’s prices.

And major producing companies, running out of oil reserves but flush with cash, are going to move even more aggressively to buy up small- and mid-cap exploration companies.

Throughout history, one fact is immutable: War — and the winds of war — have always been a powerful inflationary force. Even before the first shot is fired, consumers hoard supplies, companies build inventories, and nations stockpile strategic reserves. And once the battles begin, the disruptions to supply chains and shipping channels hit supplies even more deeply.

Meanwhile …

The U.S. Government Is Busting Its Budget
To Smithereens, Driving Inflation Still Higher

As I’ve told you time and again, the starter engine of worldwide inflation is neither in China nor India.

It’s right here in the United States, in Washington, D.C.

It’s the largest budget deficit in our history (in dollar terms), coupled to the largest trade deficit ever (in any terms).

The order coming down from on high: “Fight the foreign wars. But don’t bust the budget.” In other words, “make an omelet but don’t crack any eggs.”

That’s not going to happen. Neither the White House nor Congress — neither Republicans nor Democrats — have lifted a finger to restrain domestic spending. No one has done a darn thing to raise additional revenues. Everyone is pandering to election-year politics.

It’s a classic cesspool of carelessness that breeds inflation. It’s here. It’s now. And it’s rampant.

What to Do

First of all, don’t let anyone persuade you that this is “a passing phenomenon.”

Day after day, week after week, we’ve been telling you about powerful, perennial forces that are plowing through the world economy — the massive, worldwide increases in demand … the ever tighter supplies … and the drum roll of rising natural resource markets. These are not the signs of a passing phase.

Still not convinced? Then read our stories about the New Wave of Exploding Prices, the Triumph of the Skeptics, or the Oil Boom … and see all the evidence on our Money and Markets website.

Second, get a big chunk of your money to safety. But don’t reach for long-term bonds. Despite the fact that short-term interest rates have quintupled since 2004, long-term rates have barely budged. So why lock your money up now, when you’ll likely get much higher yields if you wait? Instead, stick with 3-month T-bills or money market funds that specialize in short-term Treasuries.

Third, make sure you have a well-balanced portfolio that’s likely to rise the most with inflation. That should include low-octane vehicles like Enerplus (ERF) or streetTRACKS Gold Trust (GLD).

Plus, it can include high-octane investments like the four red-hot small- and mid-cap natural resource stocks Sean is recommending to his subscribers today.

The original plan was to get those out in the morning. But when I spoke to him over the weekend, he said he wants to watch the markets this morning and wait until this afternoon. So if you missed the midnight deadline to join him last night, you may still be able to get in if you call early this morning.

The number is 1-800-898-0819. (It’s too late to order online.)

Good luck and God bless!

Martin

For more information and archived issues, visit http://legacy.weissinc.com.

About MONEY AND MARKETS

MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Jennifer Moran, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.

Sign Up Free