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INFLATION FOR THE NATION?

We all know that the price of crude oil has receded from its highs of roughly 78 bucks a barrel to today’s roughly 60.00. As a consumer myself, I can attest to the fact that even in Canada, we’ve seen the price of gasoline at the pump go from a lofty 1.05 per liter all the way down to about the .80 per liter mark.

Most folks who heat with natural gas have watched prices recede from 15.00 to 4.00 – only to see it rebound to 7.50 where it is at the time of writing.

If you’ve been paying attention, you’ve likely read or heard that Goldman Sachs altered the make-up of their much watched and followed Goldman Sachs Commodity Index [GSCI]. The effects this “timely” adjustment had on gasoline prices had been covered in this space before.

The purpose today is not to “carp” about the timing or possible political motivations of these aforementioned price breaks. Instead, I thought it would make some sense for everyone to stop and consider whether or not these lower prices are going to hold.

I mean, if natural gas prices could double from current levels and if gasoline prices are going back up 25 – 30% - what should [or could] any of us do to help cushion the blow?

First – Is It Likely To Happen

On this point, I’m going to defer to a graphic graciously provided by Dr. Jim Willie:

What this chart shows is broad money supply growth in the world’s fasted growing economies. Take note of some of these growth rates; Money supply growth is up to 18.4% in China, 19.1% in India, and a whopping 23.2% in South Africa, and Russia tips the scale at a whopping 45%.

While admittedly, we’re not sure exactly what the broadest measure of money supply [M3] is in the United States anymore – the chart above certainly gives clues that Central Banks, en masse, appear to be pursuing expansionary monetary policies – don’t they?

I would now suggest to all of you folks that with this degree of money creation – globally – the recent steep price corrections we’ve experienced should be viewed as a respite with the odds STRONGLY favoring a return to higher prices in the not too distant future.

Second – Cushioning The Blow [Return to Higher Prices]

Now, if you’ve bought in to the line of reasoning above – there are a couple of things you might want to consider with your personal investments if you are not already adequately positioned this way. Remember folks, implicit in the term *adequately positioned* is the notion that you consider your appetite for risk and number of other factors that can and do vary from person to person. This is where a consultation with a Certified Investment Advisor can be of great value. These folks provide a great deal more than “energy tips” – the good ones have a wide array of tools they employ to enhance returns and lower anxiety – like dollar cost averaging for instance.

You might want to consider any of the following:

• rebalancing your portfolio to reflect original construct [buying more energy or precious metals assets]

• establishing a position in the energy sector if you do not already have one – at a “lower risk” entry point – perhaps utilizing dollar cost averaging

• establishing a position in precious metals if you do not already have one – precious metals being – the best historic hedge against inflation.

Odds & Ends

This past Friday morning – government published their preliminary reports on Q3 Gross Domestic Product [GDP]. The headline number showed growth of 1.6% instead of the consensus expectation of 2.0%. This weaker than expected growth cause Bonds to rally [interest rates went down].

Later Friday, former Commerce Department economist, Joe Carson, noticed a quirk in the data and his observation was picked up by Bloomberg,

“Last quarter's annualized 26 percent increase in motor vehicle production shocked Joe Carson, now director of economic research at AllianceBernstein LP in New York. Without the gain, the economy would have grown at an annual rate of 0.9 percent, not the 1.6 percent the Commerce Department reported today.”

What this means is that Q3 GDP will most likely be REVISED lower with subsequent revisions which also means the economy is perhaps not quite as strong as some folks would have us believe. This may have additional implications for your investments - meaning you have yet another good discussion point when you speak with your own investment professional.

Today’s Market

Overseas equity markets began the week on a sour note with Japan’s Nikkei Index falling 317 points to close at 16,351. Meanwhile, North American markets ended the day mixed with the DOW off 3.76 to 12,086.50, the NASDAQ ahead by 13.20 to 2,363.80 and the S & P adding .60 to close the day at 1,377.95. NYMEX crude oil futures were throttled – giving up 2.39 to close at 58.44 per barrel.

In foreign exchange – the U.S. Dollar Index gained .04 to close at 85.38.

Interest rates were virtually flat [unchanged across the curve] on the day with the 2-year bond ending the day at 4.76%, the 5-year bond at 4.64% and the 10-year bond at 4.67%.

In the precious metals complex, COMEX gold futures gained 6.40 to close at 605.40 per ounce while COMEX silver futures added .12 to end the day 12.19 per ounce. The XAU Index gained .77 to close at 133.50 while the HUI added 1.18 to close 311.69.

On tap for tomorrow, at 8:30 a.m. Q3 Employment Cost Index data is due – expected +.8% vs. prior +.9%. Then at 10:00 a.m. Oct. Chicago Purchasing Manager’s Index [PMI] data is due – expected 58.0 vs. prior 62.1. Also at 10.00 a.m. Oct. Consumer Confidence data is due – expected 109.5 vs. prior 104.5.

Wishing you all a pleasant evening tonight along with Tricks, Treats and a happy Halloween tomorrow night!

Rob Kirby

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