It’s 5:00 A.M. and I’m at work writing this morning’s PROFIT CONFIDENTIAL. The Starbucks down the street opens at 6:00 A.M. and, all of a sudden, I realize I don’t have my wallet. Where is it? Do you have it?

My mind starts to wonder. What happens if I went into Starbucks this morning and tried to pay for my chocolate banana “Vivanno” with gold coins? I don’t think it would work. (According to my nutritionist wife, a chocolate banana “Vivanno” is a good morning meal, with six grams of fiber, 18 grams of protein and only 270 calories.)

Starbucks is a modern, hip place offering the ultimate “it’s all about me” customer statement. It’s obviously more fashionable to have a Starbucks cup in your hand than a Dunkin’ Donuts cup.

And, at Starbucks, it’s pretty much consistent. You know what you are going to get. And the concept works—millions of customers go through Starbucks’ 16,000 locations every single day. At most stores, you’ll find line-ups at peak hours.

But would a modern place like Starbucks take payment in gold coins? After all, it was only a couple of hundred years ago when they were readily accepted by merchants. Of course, Starbucks would not take gold coins. Hence, I’ll have wait until someone comes into work so I can bum $5.00 off them for my drink.

What’s my real message here?

The price of a beverage at Starbucks will rise over time, because we will need more dollars to pay for it. Think $5.00 is a lot to pay for my morning drink? I can see a day in the future when the same drink will be selling for $10.00, because the value of our fiat currency will diminish as inflation takes hold.

Even in Rome, when the empire was all but finished, it was lire that merchants were accepting, not gold coins. In 1927, it took 19 lire to buy one U.S. dollar. By 1970, it took 625 lire to buy one U.S. dollar—the after-effect of too much currency in circulation backed by a bankrupt country. Much like the direction we are headed in here in America.

Why does inflation grip currencies? Usually because there is too much of the currency in the financial system…again, very similar to what’s happening now. More dollars printed, more debt issued. One needs to wonder how far the greenback will erode in value.

Michael’s Personal Notes:

Following up on my article above, the other day, I wrote how it makes more sense to own stocks than bonds at this point in the economic cycle. You may remember me asking, “Why wouldn’t investors own stocks?”

And Starbucks (SBUX/NASDAQ) is the perfect example. Starbucks’ stock is up 27% this year and up 1,784% since 1993. You won’t get that kind of return investing in bonds. In fact, Starbucks’ stock pays a bigger dividend than a five-year U.S. Treasury.

I continue to like stocks over most forms of investment today, second only to gold-related investments.

[Hope you have been enjoying the new look of PROFIT CONFIDENTIAL! We’ve received many e-mails from readers saying they like the new look. I encourage your own comments, which can be sent to profitconfidential@lombardipublishing.com. Something must be working. We have two more days left in October and we’ve already had 7,940 new people sign up this month to get PROFIT CONFIDENTIAL. Happy to see people are interested in my ramblings.]

Where the Market Stands:

The Dow Jones Industrial Average opens this morning up 6.7% for 2010. The bear market rally in stocks that started on March 9, 2009, remains intact.

What He Said:

“You’ve been reading my articles over the past few months and have seen how negative I’ve become on the U.S. economy. Particularly, I believe it’s the ramifications of the faltering housing sector that are being underestimated by economists. A recession doesn’t take much to happen. It’s disappointing that more hasn’t been written on the popular financial sites and in the newspapers about the real threat of a recession happening in 2007. I want my readers to be fully aware of my economic opinion: I wouldn’t be surprised to see the U.S. economy in a recession sometime in 2007. In fact, I expect it.” Michael Lombardi in PROFIT CONFIDENTIAL, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.

Tags: Bear Market Rally, Dow Jones Industrials, inflation, recession, U.S. dollar, U.S. economy, U.S. Treasuries