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7.22.14 - Inflation Making A Comeback

Gold prices end lower as safe haven demand ebbs. U.S. stocks higher, boosted by better-than-expected inflation and housing reports. Gold last traded at $1,306 an ounce. Silver at $21.00 an ounce

There can hardly be any denying that inflation is making a comeback in the US economy. We received further confirmation of this with the latest Consumer Price Index report from the US Labor Department this morning.

The CPI increased by 0.3% in June, after climbing 0.4% in May.

Apologists are blaming the rise on gasoline prices, as if that should comfort Americans who have to drive every day. The gasoline index rose 3.3% in June.

Food prices rose 0.1% in June and core prices ticked up 0.1% as well.

As is so often the case, the devil is in the details. And the details when it comes to food prices are not particularly encouraging.

The prices of beef and bacon hit all-time highs in the United States in June. Ground chuck cost $3.91 per pound and bacon cost $6.11 per pound.

A decade ago, in June 2004, a pound of ground chuck cost $2.49, which means that the commodity has increased by 57 percent since then. Bacon has increased by 78.7 percent from the $3.42 it cost in June 2004 to the $6.11 it costs now.

The implications of higher inflation should not escape the attention of investors. Historically, higher inflation has resulted in higher gold prices, as gold serves as a hedge against high inflation. High inflation has also historically been quite unfavorable for stocks and bonds.

But inflation isn't the only concern confronting the financial markets.

Jeremy Grantham, co-founder and chief investment strategist of GMO, a Boston-based firm with $117 billion in assets under management, is warning investors that another horrific stock market crash is coming, and the next bust will be “unlike any other” we have seen.

Grantham pulls no punches when assigning responsibility for the coming financial carnage. In a recent interview with The New York Times, he calls Federal Reserve Chair Janet Yellen “ignorant” and says the Federal Reserve all but killed the economic recovery.

Grantham isn’t the only one worried about a market collapse.

“We have no right to be surprised by a severe and imminent stock market crash,” explains Mark Spitznagel, a hedge fund manager who is notorious for his hugely profitable billion-dollar bet on the 2008 crisis. “In fact, we must absolutely expect it."

In addition, respected fund manager Sebastian Lyon, who oversees the Personal Assets investment trust and the Trojan fund, is holding cash and gold until stock markets fall. One of Lyon's primary worries: increased government involvement and interference in the world economy and financial markets.

Lyon is not the only analyst who is turning his attention to gold.

Bank of America/Merrill Lynch, who started 2014 bearish on gold, is shifting its outlook. Its analysts believe the worst days for the precious metal may be over.

In a note to clients this week, metals strategist Michael Widmer notes how gold prices have stabilized this year thanks to steady physical demand from emerging markets — China and India absorbing mine and scrap supply — which has helped compensate for investor selling. In the future, he says, that balance will sway in gold’s favor.

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7.17.14 - Markets Rattled By Russia-Ukraine Tensions

Gold prices head for biggest gain in four weeks on increased Ukraine-Russia tensions. US stocks opened lower on poor housing data and weak jobless claims. Gold last traded at $1,318 an ounce. Silver at $21.17 an ounce.

The markets were rattled today as concerns grow over the conflict between Russia and Ukraine. Investors originally woke up to news that a Ukrainian fighter jet was shot down by missiles from a Russian plane. Only to find later it was a Malaysian Airlines commercial jet shot down in Ukraine near the Russia border with almost 300 passengers a on board. One the news hit, investors immediately sold stocks, sending U.S. indexes down modestly to fresh session lows.

Tensions have also been growing in Israel as Prime Minister Binyamin Netanyahu directed the IDF to send ground troops into Gaza to strike the terror tunnels into Israel. This operation was approved after Israel agreed to the Egyptian cease-fire proposal, which Hamas rejected. A statement by authorities was released announcing that Hamas even fired rockets during the five-hour humanitarian cease-fire. “In light of Hamas' continuous criminal aggression, and the dangerous infiltration into Israeli territory, Israel is obligated to act in defense of its citizens,” the statement said.

During this time of turmoil and conflict investors flocked to gold, a traditional shelter for investors during times of uncertainty. Gold prices surged as much as 1.9% today, their biggest one-day jump in four weeks. So far this year gold has rallied 9.5%, outperforming commodities, equities and Treasuries; as the violence in the middle east and hostilities between Ukraine and Russia boosted demand for a safe haven asset.

Markets have also been feeling the pressure in other ways. A newly released report from the Bureau of Labor Statistics shows year-over-year gains in some food products at the producer level have increased greatly. Some examples include a 33.9% increase for eggs, 28% increase for pork and a 10.7% jump for dairy products. American families are struggling to keep up since paychecks are not going up at similar rates.

Companies are feeling the pressure too, Hershey's just announced that the price of all its chocolate bars is going up about 8 percent due to the increased cost of their ingredients. Hershey's isn't the only one either. Last month J.M. Smucker, the largest coffee producers in the U.S. announced their plan to raise coffee prices by about 8% and Starbucks has announced several price increases of their own.

Chairman of Swiss America, Craig R. Smith was on Fox News this week discussing this jump in inflation costs. Check out the interview here. In his interview Smith responds to the government claims that the inflation rate is only 2% per year, saying the government is manipulating the inflation numbers and keeping them low so they can benefit. By keeping the numbers low "there's less adjustments to social security, less adjustments to Medicare and less adjustments to cost of living increases" says Smith.

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7.15.14 - Yellen Says Economy Still Needs Support

Gold closes below $1,300 on a stronger U.S. dollar and technical selling. U.S. stocks closed mostly lower after dovish comments from Fed Chairwoman Janet Yellen. Gold last traded at $1,297 an ounce. Silver at $20.89 an ounce

Earlier today Federal Reserve Chairwoman Janet Yellen gave her testimony to U.S. senators saying the economy is still not strong enough. Wages are rising too slowly while too few Americans are participating in the job market. "We judge that a high degree of monetary policy accommodation remains appropriate," Yellen stated.

Critics have been arguing that the Fed could easily pump too much money into the economy, which could trigger a bubble or broader inflation. CNBC's Rick Santelli is one of those critics. He explains that by keeping interest rates artificially low, the Fed has encouraged reckless government borrowing and spending while crushing savers, especially retirees. The Fed also focused its efforts on making the rich even richer through Quantitative Easing while middle class Americans suffer.

With stock markets at all time highs, it seems the Fed is correct about the economy for the moment. But many market experts know its fake and artificially propped up though the efforts of the Fed. According to new research by financial consultant Andrew Smithers, chairman of Smithers & Co., we are in a massive stock-market bubble. According to Smithers, U.S. stocks are now about 80% over valued on certain key long-term measures and we are currently in the third biggest bubble in U.S. history.

Aside from stocks being overvalued, the U.S. also risks a fiscal crisis if it doesn't get the growing federal debt under control, according to a report from the Congressional Budget Office. In its new long-term budget outlook, the CBO said federal debt held by the public is now 74% of the economy and will rise to 106% of GDP by 2039.

If federal debt grows faster than GDP, the path will be "unsustainable" for the economy, risking a crisis where investors would doubt the government's ability to pay its debt obligations. “Such a fiscal crisis would present policymakers with extremely difficult choices and would probably have a substantial negative impact on the country,” the report says.

In other market news, the anti-dollar movement being led by Russia and China is growing. The anti-dollar alliance among the BRICS nations have successfully created a "mini-IMF." According to BRICS, "We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness."

Putin explains this is a part of "a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies." The BRICS will be providing their own funding. Basically, the role of the dollar will no longer exist. One expert says its "game over" for the dollar.

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