Sunday, February 27, 2011

Whats In Your Wallet?

I still have more to say about the WTI manipulation and other tricks being played on the unsuspecting public right now.  First check out this alarming chart and read it with the perspective that it takes that many more dollars to buy each of those commodities.
Annual relative performance of 40 asset classes (in %, expressed in USD) (in green: profit / in red: loss) - Source: Chris Martenson, 02/04/2011Annual relative performance of 40 asset classes (in %, expressed in USD) (in green: profit / in red: loss) - Source: Chris Martenson, 02/04/2011
I also need to make something clear.  The quantity of Wheat in a “bushel” has not change.
Maybe you have not read the KFT earnings report or the SYY release so a summary may be helpful.  This is how things have basically happened, please allow me to over simplify:
  • “How can we fire enough people to cut costs and survive” Result Earnings Increase
  • “Let’s take 4pcs of cheese out of the package but keep the price $1.99” Result Earnings Increase
  • “The grocery chains and customers can’t seem to take the cost increases and A&P along with weaker players are starting to go out of business” Result… Input Price Increases Begin Hurting Earnings 
Now what?  The customer has not really noticed this happening but it is a real problem.  There are many more dollars chasing in many cases fewer goods on the world market.  The US is having trouble keeping it’s dollar supported regimes in power throughout much of the world.
How long will it take for the average person to notice the problem?  Maybe a long time.  They still don’t understand the inflation reporting.  They still never make the connection that there is economic dis-incentive in place  If CPI is reported accurately that results in a COLA increase for entitlement recipients which means that the program can’t keep growing which slows the vote buying process.
Why is WTI so much cheaper than all other reported prices on other blends of crude?  Is there any possibility that there is an incentive in place to keep that price lower than reality?  When I ask informed people what the price of oil is they confidently say, “$85/brl.”  I think the price is more like $100/brl in the real world and headed much higher.  In life you can lie for a while and if you are powerful you can avoid consequences using your previous good standing to hide the truth but you are only delaying the inevitable.  For the US consumer that means going to the grocery store and spending $100 for two bags of food and filling the car up with another $100.  Maybe that is just conspiracy talk, only time will tell.
What to do about it?  First, there should be some real bargains in the market with respect to good oil explorers in safe countries right now.  I am finding some.  When the price adjusts to reality there should be fast tracked projects that experience rapid price appreciation as capital is thrown at them out of desperation.  Try to avoid scams because the oil business is about as dangerous as the mining business.
As for the other general issue first mentioned?  Stop buying paper assets backed by worthless fiat money and start buying things that people need on a world market, things that have utility and can float upward when your currency is abused.  Don’t like the phrase “currency abuse?”  Well, what else do you call the reaction on that chart above?

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