Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Inflation at Almost 5%…Is It Any Wonder
Dollars Buy Less and Less?

Monday, September 19th, 2011
By for Profit Confidential

Gold prices rising for 10 years straight…the money supply greatly expanded…the printing press for dollars running overtime…is Michael the only one concerned about rapid inflation?Gold prices rising for 10 years straight…the money supply greatly expanded…the printing press for dollars running overtime…am I the only one concerned about rapid inflation?

I rarely read or hear a report talking about today’s rising prices or the hyperinflation we may sustain in the years ahead. We all know prices are rising—only housing prices have remained low. Inflation is real and it is here now.

The U.S. consumer-price index (CPI) increased 0.4% in August. That’s an annual inflation rate of 4.8%! Why are we not hearing and reading more about this? The only vocal entity on inflation has been gold bullion. The rise in the price of gold is shouting, “Inflation ahead!”

By keeping interest rates so low, by increasing the money supply, the Fed is spurring inflation. And that’s what we all want: inflation, not deflation. So the Fed has us pointed in the right direction. The trick for the Fed will be eventually bringing interest rates up ever so gently when inflation starts to get out of control.

Unfortunately, consumers are suffering from inflation today. Retirees who will not accept risk with their investments are stuck with 10-year Treasuries paying a measly two percent. With inflation at 4.8%, consumers’ money is losing 2.8% of its value over 12 months.

Inflation is a problem today, my dear readers, and it will be a bigger problem tomorrow. Keep the gold investments. They’ll be even more valuable as time passes and inflation really takes hold in this country.

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Michael’s Personal Notes:

Jobless claims rose by 11,000 to 428,000 last week—the highest level since June, according to the U.S. Labor Department. Wow! Jobs continue to be a big economic problem in this country. Bank of America (NYSE/BAC) is the latest large company to announce major layoffs plans.

Until employment in this country gets back on track, the housing market will not recover. And until the housing market recovers, the economy will continue to be anemic. That’s simple economic analysis.

I’ve been thinking more and more about Obama’s American Jobs Bill and I don’t believe it’s the answer. It will just add billions to our debt burden.

The answer, my dear reader, the answer to creating old-fashioned jobs in this country, is capitalism and entrepreneurship. That’s what created this great country in the first place.

Drastically lowering taxes will create jobs. A flat tax across the board—say 20% or 25%—with a valued-added sales tax on the purchase of items, like they have in countries such as Canada, is the only way to really get the economy going and to create jobs. Unfortunately, the Obama administration has never put forth any such proposal.

Where the Market Stands: Where it’s Headed:

We are in a bear market rally that started in March of 2009. While 30 months’ old and tired, this bear market rally has more life left in it. I believe that the rally will push stock prices even higher, as the bear lures more investors back into the stock market.

What He Said:

“As investors, we need to take a serious look at our investment portfolios and ask, ‘How will my investments be affected by an American-grown recession?’ You should take what precautionary steps you can right now to protect yourself from a recession in 2007. Maybe you need to cut your own spending or maybe you need to sell some stocks that will take a beating during a recession. You know what tidying up you need to do. Don’t procrastinate…get to it now. And please remember: Recessions can happen quickly, stock markets don’t go up during recessions, and the longer the boom before the recession, the longer the recession. Just based on my last point, we have plenty to worry about in 2007.” 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.

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles