Financial Sense Blog

As most readers have probably heard by now, January inflation increased by more than expected at 0.4% from the previous month. Rather than focus on the big number, I investigated a few of the smaller categories in the BLS data, particularly in foods affected by commodity prices. One item immediately jumped out – the fats and oils category. Since last month, seasonally adjusted prices in this category increased by 2.1% – that’s enormous. Since soybeans are a crucial ingredient to vegetable oil, this spike is fairly easy to explain.

The Greek debt and banking wipeout may be coming to a head. Ten-year government bond yields have spiked to over 12% versus 11.2% when I last wrote a post. Greek CDS are up to 907 from 833 last week.

The yield curve (or spread) is the difference between the short rates (set by the Fed) and the yield on the longer-dated bond. The yield spread is now about its widest in 40 years. This is a boon to the banks, which can borrow for almost nothing and then buy the long-maturity bonds and rake in the money. This is what the Fed wants; when the banks become bloated with money, they have four choices -- they can make crazy investments (like they did with home mortgages), they can increase their dividends, they can pay the money out in bonuses, or they can lend the money to businesses who really need credit.

DEFENSIVE NOTES ON THE MARGIN: Investors sharing our view that financial assets in general are fundamentally overvalued in real, purchasing-power terms naturally seek to preserve wealth in alternative assets, including commodities. However, while commodities may indeed be more fairly valued, that does not mean that they can decouple entirely from developments in financial markets. Should equity markets suffer a major correction, commodity prices are also likely to fall, in particular those for industrial commodities.

The average pay for a Federal drone (aka worker) has risen by 58%, while the average pay for real workers has risen by only 30%. Therefore, the average non-government employee has seen a decrease in their standard of living as inflation has risen faster than wages. As you can calculate yourself, Federal government spending surged by 124% between 1999 and today. Have you noticed a doubling in service level, competence, educational scores, new energy solutions, or safety and security? What did we get for an extra $2.1 trillion of spending?

Mubarak resigned, journalists packed their gear, and CNN went back to talking about obesity statistics - but Egypt's troubles are far from over. After weeks of protests (leading to strikes and, understandably, no tourists), the country's economy took an estimated 1.5 billion-dollar punch to the face.

Last week, a bit of news came out that—weirdly—didn’t garner the attention or the reaction one would have thought it would

This week I had the pleasure of interviewing the Brazilian philosopher, and president of the Inter-American Institute, Olavo de Carvalho. During the conversation I suggested that something is wrong with our thinking today; that we don’t worship in the same way, or obey the rules in the same way, or observe common courtesy as we once did.

When the Tunisian, then the Egyptian revolutions succeeded we were all surprised. Many believed that at last democracy had won in the Middle East. When the King of Jordan changed his government a feeling of contagion set in. Then we heard of riots in Yemen, Libya, Bahrain, Iran and we now look at the entire Middle East as ripe for contagious revolutions. The question hangs in the air, “Are these revolutions or just exuberant demonstrations?” Will they topple regimes and disrupt oil supplies.

There have been numerous reports of bullion shortages in many parts around the world, along with rising premiums. And the two explanations – we’re running out of gold! and, it’s just a manufacturing bottleneck – are at odds with one another. So, who’s right?