Are Rapidly Rising Prices Transitory?

Two metrics that stand out in our weekly table are the Rogers Raw Materials Index, up 2.22%, and the T-Bond (TLT), which went down 1.01%, meaning that interest rates rose. You might expect rates to rise when money flows into equities but U.S. equities were, at best, flat last week. Chairman Powell’s propaganda was spinning the theme this past week that rising prices are transitory. That could be, but since COVID shut down major portions of supplies and has disrupted global supply chains, the end of which we have not yet seen, my IDW has risen 37%! Of equal importance may be the composition of my IDW. Note that four of the top 6 components are commodity related. And the Philadelphia Housing Index is on fire due to low interest rates manipulated by the Fed in order to keep the system from imploding.

The S&P 500 is the fifth-largest gainer in my evenly weighted Watch, and real estate (high yielding REITS) holds down the seventh place. But after that, Chinese and Indian stocks as well as auto stocks and consumer stocks are definite laggards. Perhaps most important of all is the 13% decline in U.S. Treasuries, meaning that interest rates are on the rise despite the Fed pumping $120 billion of money from heaven into the economy every month. If stocks rather than commodities were dominant leaders in my index, I might be more inclined to agree with the “Don’t worry be happy” crowd that rates are on the rise because of a strong economy. But supply disruptions are shutting down auto manufacturers. And when wages are rising for lower paying jobs because Uncle Joe is making it more profitable to stay at home on the couch than to go to work, and as trillions upon trillions of dollars are being deficit spent into existence, it’s hard for me to believe this inflation problem is transitory. I will be speaking to Peter Boockvar about that topic on my radio show on Tuesday. Also, I highly recommend reading Alasdair Macleod’s latest missive, titled, The Economic Consequences of Bank Credit Contraction at You might think that banks failing to lend out massive deposits they now hold is deflationary. But as Alasdair points out, the absence of loans into the real economy adds just one more constraint to supply shortages.

Regarding the dollar and gold, they are highlighted in yellow because they are monetary items and not commodities. As such, they are not factored into my IDW. The decline in the value of the dollar suggests it is being depreciated faster than other currencies in the dollar index. The paltry increase in gold is being capped by bullion bank manipulation, propaganda, and phony inflation numbers. But its day in the sun is not far away.

About Jay Taylor