Friday, April 2, 2010

Inflation Items: Good Friday

Oil, coal, industrial metals, agricultural commodities are ripping higher this week. Long duration government debt is shooting higher, US 10 yrd yield punching close to 4%. Natural resource buyouts are happening left and right, as developing economies stage a frantic grab for global supply. Consumer stocks are hitting new highs, including many all time highs. Meanwhile, Ben Bernanke's accelerator is stuck wide open as we hurdle down the freeway toward an inflation bonfire.

More companies reporting healthcare reform costs.
This will only get worse as time goes by. We didn't fix the healthcare cost problems, we made them bigger. The new costs will be passed on to consumers.

Steel prices will be rising soon, after a 90% hike in iron ore costs
Interesting that the EU is investigating the major iron ore producers for "competition issues". Governments have spent like proverbial drunken sailors, taken on so much debt that it casts doubt on the viability of their currencies, and now they get a little huffy when prices start to spiral. Unfortunately for them, the owners of these resources don't have to sell at the buyers' preferred price. Coal prices are rising sharply too, which will further add to steel price inflation. Maybe governments can just issue more debt and subsidize car prices to keep consumption rising in the face of these crystal clear economic signals from the market place.

Meanwhile China is buying every natural resource that's not tied down to secure supply.
Something tells me they don't see prices dropping much. They will eventually let the yuan float and then they'll buy up the rest with their strong currency, as weak currencies get priced out of the global markets.

Speaking of floating yuan
Forward rates are rising. I wonder what will happen to US inflation when all those Chinese import items start increasing in price. What will happen to our bond market? Be careful what you ask for.

Indian consumption of resources is surging too
Add another 1.2 billion consumers to this global stimulus train.

Another steep iron ore price hike
The Asians are paying up. Who wants it most? Get out your wallet.

Canadian dollar is strong.
Strong currencies are backed by hard assets and economies with goods for international exchange. The currencies will fluctuate, but the trends will remain.

China won't "kill the market"
Of course they won't. They are not going to abandon the playing field and allow Western economies to dominate resource utilization. The free ride is over.

Chinese will pay up for iron
They may not like it, but they know why it's happening and they know they can afford it. This is very similar to the economic competition between the US and USSR during the cold war. Only now, we're the hidebound economy and the communist upstarts are the vital producers with the advantage.

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