CHART OF THE DAY: Oil Prices vs. Food Prices

Saturday, January 29, 2011

Keep it simple and see the coming food-energy price spiral. The FAO Food Index and EIA oil index show a very high correlation of 0.93, according to this graph plotted by Paul Chefurka.

GRAPH: Food prices doubled in the last 11 years while oil rose more than 150%. Data: Nov 2000 to Nov 2010 by EIA, FAO. Chart courtesy Paul Chefurka
As global protests have spread to Saudi Arabia oil prices are destined to lead the next step up and remain high. The possibility of supply disruptions by either a closure of the Suez Canal or riots getting out of hand in Saudi Arabia will put in a solid floor at current levels.
This does not bode well for food prices. Check some 11.1 million Go ogle results for "rising food prices" or look at your latest grocery bill.
Forget about seemingly stable "core" ex food/energy inflation and tepid "consumer price indices" with overweighted consumer electronics and underweighted everyday needs. No human being can fight inflation by stopping to eat and no business can cut its energy consumption deliberately. Riots in Africa are not for cheaper iPads but stable food prices.

Alan Greenspan Advocated For A Gold Standard - In 2007

Saturday, January 22, 2011

Hold your breath. This must be the most overlooked video of former Federal Reserve Chairman Alan Greenspan and it's beginning to make news more than 3 years after its original recording.
Greenspan, creator of the biggest fiat money bubble in the world until his retirement in 2006, not only considers the question of the necessity of a central bank "very interesting" but says, yes, says, that fiat money creation must be limited by a gold standard (or a currency board).

VIDEO: Alan Greenspan advocates a gold standard to restrict the limitless money supply in a fiat money system and says the (central bank free) period of 1870 to 1914 is a good example.

The Prudent Investor's Forecast and Strategy 2011

Thursday, January 13, 2011

BONDS: The 20-year interest rate downtrend reversed in 4Q10: Short all government bonds (and hope your counter party will remain solvent.)
Rising rates will become the tightening noose for all debtors. Mortgage holders may find comfort by switching to fixed rate contracts as far out as possible.
SHARES: As inflation heats up, go long energy, food stocks (and convert ensuing profits into gold.) Underweight consumer (durables) products in a cool economic environment, short debt-laden financials, especially the "dumb money" insurance sector.
DERIVATIVES: Stay away from all OTC instruments as your contract will ultimately only be worth as much as your counter party can pay. Square all derivatives in disguise like ETFs.
COMMODITIES: Buy silver as it is still 70% away from its nominal high seen in 1980 and has a dual use as money and industrial resource. Take profits once gold:silver ratio has descended to 1:30 and reenter after technical consolidation. All other commodities have reversed and have overshot the mean by now.
CURRENCIES: Buy the real stuff - gold. All other fiat currencies are just a claim on some central bank counter party and historically they have all wrecked their product via inflation in the last 300 years.
Once you have done this handful of trades, turn off the charts, lean back, contemplate the world and check back here in January 2012.

Wikinvest Wire