Monetary madness continues, but look at what is happening to prices.

Architect Of Its Own Demise
June 15 (
King World News) –
Peter Bocckvar: 
If we had a $1 for every time we heard a Fed member say they want to run things hot. The problem with that approach is it eventually flames out or the analogy I’ve given, when wanting to drive 200 mph in a 55 an accident was bound to happen. Thus, this policy eventually becomes the architect of its own demise in terms of effectiveness. Well, the most interest rate sensitive part of the market, that being housing, has hit a wall and is now burning out (mortgage apps to purchase a home is at the lowest in 13 months). I remain bullish long term on housing because of the Millennial demographic and 10+ years of under investment in new homes but it is clear that home price sticker shock driven by a dearth of inventory and a lot of demand, egged on by historically low interest rates, has empirically slowed the pace of transactions. 

Lumber prices thankfully for builders and buyers continues to correct but even with the pullback from $1686 (per 110k board feet) on a closing basis to $996.20 yesterday, it is still triple the average price over the past 15 years.

Lumber Still Triple Average Price Over Past 15 Years!

I Remain Bullish On Commodities
Does triple the price mean that inflation is NOT transitory or that it is now that it is off from over $1600? Calling that transitory I think is ridiculous. Another way of thinking about it, if oil goes from $50 to $100 in one year and then the next falls back to $90 the following year, is that now deflation? Only from the point of view of a central banker it is. I remain bullish on commodities and commodity stocks (particularly energy, ag and copper) by the way. Years of underinvestment are not going to be solved by a 6 month rally in prices. 

Does the Fed alter policy in light of this obvious reality in housing or do they continue as is because their models tell them to? Does the Fed question their QE program in light of the seemingly daily records being reached of the use of their RRP program which touched $583b yesterday?

Madness Continues As Fed Repos Hit $583 Billion

So, is it enough that QE takes Treasuries and Agencies off the market and RRP puts it right back in to get them to question QE? Are the last two CPI numbers that were well above expectations enough to get them to waver on their uber dovishness? I say all this because we must ask whether a change in the facts moves the needle with policy driven by bureaucratic, establishment thinking.

Prices Jumping
Producer prices in May jumped .8% m/o/m after a .6% rise in April, 1% increase in March, a .5% gain in February after a 1.3% spike in January. Paul Volcker is spinning in his grave, especially when he sees where monetary policy is current calibrated. These are m/o/m gains but against the easy comp, they are up 6.6% y/o/y. As for the core rate it was up .7%, two tenths more than expected and that is now the 3rd straight month with that increase. Thus, we’ve got to a 2% producer price annual rate in just 3 months. The core rate is up 4.8% y/o/y…

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The goods side increase of 1.1% m/o/m ex food and energy (food prices spiked 2.6% m/o/m by the way. Energy prices rose 2.2%) was driven by higher prices for non-ferrous metals like aluminum, copper, lead, nickel, tin, and zinc.

More Inflation
With respect to services and something I’ve been harping on for many quarters now, transportation costs continue to spike. ‘Truck Transportation of Freight’ prices jumped 3.9% on the month and by 16% y/o/y. Rail prices were up by 1.1% m/o/m and 5.1% y/o/y. Air transport though took a breather, giving back the past few months of gains as more passenger planes come back on line and they take a lot of cargo. Not surprisingly, auto retailing margins jumped by 27%. As people start to shop again, apparel/footwear/accessories retailing prices were up by 4.1% m/o/m and 11.4% y/o/y. Anything related to the house saw price spikes, such as furniture, flooring/floor coverings, hardware/building materials/supplies, and major household appliances. Thanks to the higher stock market, ‘portfolio mgmt’ prices rose 2% m/o/m and 31% y/o/y.

Intense Price Pressures
Bottom line, I didn’t need the PPI stats to tell me that we’re experiencing intense price pressures. Just ask any business in the real world but at least we can quantify to what extent where we have to go back to the 1970’s to see this type of behavior. Those that see this inflation as transitory, many of which didn’t see the inflation coming to begin with, will be right at some point but that’s like saying the inflation in the 1970’s was transitory too because it eventually slowed. Either way, businesses and consumers are having to deal with this NOW, regardless of what economists think about temporary or not. And, the global level of interest rates being so low and monetary policy being so extreme have NO shock absorbers whatsoever to deal with anything not so transitory.

With respect to these price pressures, we are seeing ONLY THE BEGINNING of the pass thru to the rest of us.

Also just released: WILL GOLD MARKET CATCH FIRE? With Basel III Deadline Approaching, Bullion Banks Massively Short $34 Billion Of Paper Gold! CLICK HERE.
Also just released: Turk – At Last Gold & Silver Prices Are Going To Be Free From Manipulation CLICK HERE.
Also just released: Greyerz – Final And Total Catastrophe Lies Ahead For The Global Currency And Financial System CLICK HERE.
Also just released: Celente – The Price Of Silver Is Headed To New All-Time Highs CLICK HERE.

***To listen to Gerald Celente discuss his prediction that silver is headed to new all-time highs, gold, and the big surprises to expect in the back half of this year CLICK HERE OR ON THE IMAGE BELOW.

To listen to Alasdair discuss what to expect in the gold and silver markets going forward CLICK HERE OR ON THE IMAGE BELOW.

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