Mostly: Classical

[Frank Pembleton]

MARKET-UPDATE

With the price of oil dropping like there’s 10 million barrels of oil in storage in Iraq waiting to be delivered to the nearest refinery (and there is), I find the divergence between the CRB index and gold to be quite interesting:
http://stockcharts.com/webcgi/perf.html?$CRB,$GOLD

With the price of oil dropping—is it safe to assume that inflation is dead? The answer to the question is no, because $20 oil will dramatically increase a persons purchasing power. The reason the fed keeps talking about deflation is because they're admitting to the possibility of perpetually high oil prices which is DEFLATIONARY. But what happens after you’ve lowered interest rates to the lowest ever, what happens if your government relentlessly cuts taxes without cutting the size of the welfare state, what happens if you stimulate the economy in the grossest most distorted Keynesian way to offset the high energy prices? Then you’d have to ask yourself what would happen if the energy prices reverted to the norm—which is $20 oil and $3-1/2 gas?

Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.
Ronald Reagan, August 15, 1986

So is it safe to assume that there is no inflation because the CRB is correcting? First of all I'd to point out that the CRB is primarily an agricultural index with over a 62% weight towards edible commodities. Energy makes up only about 10% -- could it be dropping because of the ideal grain growing conditions that farmers are being presented with? And what about the mad cow disease? That would certainly have an effect on barley prices here in Alberta and corn price out in Ontario, no?

The truth lies in the price of gold. Gold as beautiful as she is, ain’t no dummy. She anticipates inflation like no other commodity can and leads the CRB. Therefor the rising price of gold is an indication that INFLATION is here and you can thank our leaders in their efforts to save (or is it destroy?) our economy with our own money.

Regards,
Michael........