Jim Puplava's Blog

Deflationists and inflationists have been arguing for years. Each side has data to back up its claims, and the public doesn't see a clear winner. One of those data points is what historically occurs when an overburden of debt finally blows up, an event that's almost certainly dead ahead for us.

Investors are faced with a dilemma. Where do they place money in an era of financial repression? Do they chase Treasury yields which are now in bubble territory? Or are there safe havens still available in the stock market?

While the world is focused on Europe another set of numbers were released today with the most important releasing tomorrow. Look for a drop in the ISM, based on weakening regional PMI’s. The jobs number on Friday could also be weaker than anticipated, that is unless the miracle workers at the BLS come up with some magical hypothetical jobs from the birth-death model.

This week will be a big week for the markets. In addition to the ongoing Euro debt crisis there will be a plethora of economic reports including six PMI reports that will tell us a lot about future economic growth. Of the 13 monthly PMI reports five have reported so far with two positive (Empire & Kansas City) and three negative (Philly Fed, Richmond Fed, and the Texas Manufacturing Survey).

We would equate the current market environment to the events that precede a declaration of war. Prior to the declaration markets sell off due to the fears of uncertainty that precedes the breakout of hostilities. Once the war begins, and the bombs start dropping, the market stages a recovery because it is the beginning of the end. That is where we are now.

Large cap stocks appear to be emerging as the new market leaders in this markets' ongoing advance. I wrote about this in my last piece "The Story Nobody Wants to Hear." As shown in the six graphs below...

Financial repression is going to be with us for the balance of this decade. Fed officials have spoken clearly that they intend to leave interest rates at zero until at least late 2014, and maybe beyond. This means investors will have to look elsewhere to fill in their investment and income gap. One way to fill that gap is dividend paying blue-chip stocks. The authors of Triumph of the Optimists have shown that over the last century investment returns have been far superior when dividends are reinvested. The compound return is almost double when long time frames are considered.

While numerous events portend future global and economic turmoil, successful investing warrants a close examination of the dramatic effects central bank intervention and money-printing have on financial assets in the midst of major bear markets.

It’s happening again. Gasoline prices are on the rise. Since bottoming nationwide last September 29th at $2.69 a gallon, they have risen to $3.698; up $0.30 in the last month. The blow-dry’s on cable television are going bonkers with hysteria trying to explain it. News anchors like Bill O’Reilly are ranting vociferously: “It’s all due to greedy oil companies.” Politicians are blaming speculators. Meanwhile, at the pump the average American is stuck with higher fuel bills to help pay for the weekly cost for commuting to work. We’re less than $0.30 away from taking out the highs reached last summer and only $0.42 a way from surpassing the record set in July of 2008... and it's still only February!

Oil is the lifeblood of modern society, powering over 90% of our transportation fleet on land, sea, and air. Oil is also responsible for 95% of the production of all goods we buy and ultimately drives the natural rhythms...