In part, thank Uncle Ben's Bailout. You ain't seen nothin' yet.
One problem is that there are some goods that are only made overseas. One cannot purchase American made products of some types.
It's called inflation kids and it's great for debtors and real bad for savers. It is also something the gvmt wants to promote called monetizing the debt. Don't listen to what they say, watch what they do.
Well said. Inflation is already here...its just not reflected strongly in the "core" rate yet. Whenever I hear inflation is contained, with oil at $80+ per barrel, gold over $740, milk at $4.00/gal, wheat at an all-time high - I just laugh. Whats excluded from the "core", uhh...just the "volatile food and energy". Only the basics of life.
Uncle Ben's 1/2 point cut sent the market spiraling upwards. Its temporary. But it did send the $ falling further, and any additional cuts will just worsen the dollars decline. This is why the FED is really in a box. Prices are already at very elevated levels, and a falling dollar is in and of itself an inflationary factor since we import
6% of GDP more than we export. This is before any anti-dollar actions by foreign central banks. How long do the Chinese and Japanese hold dollar assets that day after day, week after week keep going down?
I believe a recession is imminent. The choice before the FED is simple - choose which type of recession. Inflationary, or deflationary. If they continue to cut rates, the dollar plummets (especially if the Asians start selling dollars, oil is repriced in Euros, or there is just a widespread run on the dollar), prices skyrocket, and we return to the '70s stagflation days.
Or the FED decides that inflation can't get out of control, which they can only control by
raising interest rates - significantly. Deflation follows as consumer spending dries up - as seen in Japan 1990-2007. Or US 1929-1941. Remember that the dollar was at 20+ some odd year lows before the cut. This is what Greenspan talked about the last couple of days. He said something on the order of a 8+% yield on LT govt bonds...
How to invest now? I don't know. But I do believe this - the FED and we investors are in the box. No easy answers. But if the FED continues to cut rates as the economy worsens, then I'm moving to a TIPS dominated portfolio and sitting on the sidelines for awhile. If no more cuts are coming, then a bond denominated portfolio. And a good chunk of money in an absolute return fund relying on a manager who (hopefully!) knows a hell of a lot more than I do.
And anyone who stays heavily invested in equities with this storm headed our way, well, don't start crying when the market retracts 25-50%.
Its time to pay for the long running excesses and imbalances in our system. One way, or the other.