U.S. Inflation Rate Running at 10%, According
to Popular Financial e-Letter’s Readers

Thank you to the thousands of our readers who participated in last week’s inflation survey. Here are the results with my comments.

On the first question, as to which index best reflected the inflation rate in this country, the Everyday Price Index at eight or the Consumer Price Index (CPI) at 3.1%, 94% of our readers believe that eight percent is better reflection of the true inflation rate in America:

This is a landslide victory for the Everyday Price Index. This result was further confirmed by the second question in which I asked what the true inflation rate is in this country.

The winner of the true inflation rate by a wide margin was 10%. The great majority of Profit Confidential readers believe that inflation is running at 10% per annum.

Of course, not everyone who responded to the survey left comments, but I can tell you that, out of the hundreds of comments that were left, less than one percent of readers believe that inflation is NOT a problem. Everyone was very, very worried that the inflation rate was worsening.

Below are survey respondent comments that reflected what the majority had to say:

“Yes, we’re worried about inflation big time. Although our house is losing value, we still need to pay for the fixed amount on our mortgage. Without wage inflation, the inflation rate (food, gas, child care) in everyday items really eats up our budget. We’re worried we can’t even save for retirement if the inflation rate keeps up at this pace, no matter how we try to save money.”

“I’m on a fixed income and unfortunately, the dividends from fixed income funds are going down and my cost of living is going up! Not a good combination.”

“Seems like every visit to the store (fuel/food/household goods/meds) costs more, and yes these things do have an effect on the monthly budget” And then one expects a person to save for retirement?”

“My wife used to do extra shopping for things we really didn’t need and I would put my extra dollars in an HAS and IRA … we haven’t done any of that in the last few years.”

Yes, any index that attempts to capture the true inflation rate will have its shortcomings, because it is such a massive undertaking. However, the CPI falls very short on what the average American is experiencing.

Ben Bernanke was asked multiple times over the last few months if inflation or the inflation rate was a problem, to which he always responded with a no, saying that any inflation currently in the system was transitory or temporary.

The readers of Profit Confidential would passionately disagree.

Where the Market Stands; Where it’s Headed:

While my readers might find this hard to believe, the stock market rally that has lasted about three years and which brought the Dow Jones Industrial Average decisively above the 13,000 level has more room on the upside?

Yes, many warning signs are flashing: corporate insider selling is negative, so are the Baltic Dry Index and the Dow Theory. But there has been a sharp pullback on the number of bullish stock advisors, which is very positive—the majority of stock advisors do not believe that stocks can continue to ride the “wall of worry” higher. The stock market has always done the opposite of what stock advisors as a group expect.

What He Said:

“There is no mixed signal about this: Foreclosures in the U.S.will continue to rise, the real estate market will get weaker, and the U.S.economy will get weaker. Smart investors should seriously consider unloading their stocks of consumer-products companies that produce nonessential goods.” Michael Lombardi in Profit Confidential, March 12, 2007. According to the Dow Jones Retail Index, retail stocks fell 42% from the spring of 2007 through November 2008.