Gold News

What Smart Folks Call a Bubble

...the rest of us call everyday price inflation...

WITH EACH passing day, inflation seems less and less a theoretical fiction, and more and more a genuine threat, writes Eric Fry from Laguna Beach, California for The Daily Reckoning.

No self-respecting economist or self-aggrandizing central banker is acknowledging any inflationary risk whatsoever. But the indifferent data points of real-world prices testify to the contrary.

US import prices soared 1.2% during the month of December alone – lifting the year-over-year surge in import prices to 4.7%. Producer prices jumped 3.8% year-over-year nationwide, jumping to their highest levels since July 2008 in the Philadelphia region.

These data points do not prove that an inflationary threat is stirring, but they do offer compelling testimony. Meanwhile, commodity prices are providing ample corroborating evidence. During the past eight months, the Reuters/Jefferies CRB Index of commodity prices has soared 32% – far outpacing the stock market over that timeframe. The grain complex, in particular, has been on a tear, as the prices of both wheat and corn have nearly doubled since last summer.

These eye-popping gains may be exceptional, but they are hardly unique. All but one of the 19 commodities in the CRB Index has advanced during the last two years.

All the smart folks on CNBC are calling this a bubble. The rest of us are calling it a bull market. The smart folks say, "Sell commodities, especially gold." The rest of us keep buying the stuff because we can't think of anything better to do...and can't think of any better way to protect ourselves from the toxic inflationary plume that is spewing from Ben Bernanke's Marvelous Money Machine.

The longer Ben's machine churns out Dollar bills, the greater the imperative to trade Dollar bills for hard assets...or maybe just nickels.

Yes, it's true; the value of a nickel is soaring, even as the value of a Dollar is slumping. That's because every nickel that rolls out of the US Mint contains about 3.75 grams of copper and about 1.25 grams of nickel.

Current metallic value? 6.8 cents per nickel...a premium of one-third to the coin's value as legal tender.

The nation that issues both Dollars and nickels is the same nation that spends more than it earns, that imports more than it exports and that relies upon massive foreign borrowing to sustain its bizarre breed of prosperity.

If current trends continue, a nickel might soon come to buy more than a Dollar.

Ready to buy gold...?

Eric J.Fry has been a specialist in international equities since the early 1980s. A professional portfolio manager for more than 10 years, he wrote the first comprehensive guide to American Depositary Receipts, International Investing with ADRs. Today he reports on Wall Street from California for the renowned Daily Reckoning email service.

See full archive of Eric Fry articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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