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January 11, 2006

The Road Ahead
by Rob Kirby

For those of you who have not been paying attention, there has been a considerable amount written recently about the Fed's announcement to "abolish" the publication of M3 [money supply] data. Most of what is being written centers on the notion that M3 data is going to be withheld to mask visible statistical manifestations of INFLATION.

With the past couple of Mondays falling close on the heels of first Christmas - and then New Years - I've had the occasion to read up a little more on this topic than usual. To kick off the New Year, here are a few snippets of what I've been reading.

Just The Facts...Nothing But The Facts

Last week market pundit - Peter Grandich, gave us his take on a statement by China's foreign exchange regulator re: rebalancing reserves,

Put this statement somewhere and look back in a few years and you will have in your hands a part of history. What this statement says, IMHO, is that China's rapidly-growing foreign exchange reserve, of which an estimated 70 percent is invested in U.S. dollar assets, is going to move away from the U.S. dollar and government bonds and into other areas (one of which, I believe, is gold and why gold has been rallying so strongly).

I wholly concur with Mr. Grandich's sentiment about the significance of this 'announcement' and I also share the view that most of the main stream media has been negligent in reporting its importance.

Inflation For The Nation.....And The Rest of the World Too!

Another notable and highly relevant piece that 'caught my eye' was Robert McHugh's most recent offering, The Fed's Money Supply Armament is Underway. In this well timed, well researched effort McHugh gets at the heart of the soon to be discontinued M3 issue when he reveals,

M-3 has been launched into outer space, up another $56.3 billion last week, up $92.4 billion over the past two. This is some real horsepower. Over six weeks, the meaningless figure, ahem, is up $177.8 billion. These annualized growth rates are 28.7 percent, 23.6 percent, and 15.3 percent respectively. Those are the seasonally adjusted figures. The raw, non-seasonally adjusted, figure is up $293.3 billion over the past 12 weeks, on a pace to add 1.2 trillion in money to the economy. Wow. There must be a need for this. Maybe the master Planners see a coming need to monetize our debt? To support markets? They tell us the economy is good, so clearly they cannot be stimulating our way out of a recession. There's a lot of money flooding the economy and it has to go somewhere. Right now it is lifting markets.

That's right folks - soon to be discontinued money supply data ALREADY showing annualized growth rates in excess of 28% - and the Fed would have us all believe that this is a non event. McHugh opines that the "master Planners" perhaps see a coming need to further monetize [the] our debt?

In another brilliant piece of reporting, Jim Willie points out how "official" reported GDP figures and estimates are at odds with empirical realities in interest rates [inverted yield curve] and miss the mark by purposely 'underreporting current inflation,'

....All this blizzard of evidence must be placed against a backdrop of an inverted Treasury yield curve. The 5-yr TBill yield is still below both the 2-yr and the 10-yr TBill yield. The bond market has it right, and fully contradicts the corrupted manhandled falsified GDP economic growth statistic..... It was mostly price inflation, not removed properly, then labeled as growth, aided by hedonic lifts to technology spending, compounded by chain weighting.

Slippery When Wet

I've already pointed out the coincidental timing of the cancellation of M3 data and the planned beginning of trade of Iran's new Petro-Euro Oil Bourse. Recent empirical observations include the following:

1. The stock market continues to rise - even in the face of tepid job growth numbers.
2. The price of oil has resumed it's upward climb.
3. The price of host of other commodities [including gold] has done the same.
4. Market pundits [like Peter Grandick] are pointing out that the U.S. dollar has now 'put in a technically significant double top.'

All Roads Lead To Rome?

With so much that I read and experience in the real world pointing to the likelihood of a pronounced bout with hyper-inflation in the near future - I thought it would be more than fitting to review an invaluable piece I came across recently, penned by Eric Englund - and titled, Surviving Hyperinflation.

If, and when a hyperinflationary scenario truly unfolds, this paper and related links should serve as perhaps a blueprint or at least a roadmap - providing 'big picture guidance' to entrepreneurs, managers and individual investors alike since - in the New Year - we will all likely come 'face to face' with the true WMD [Weapon of Mass Destruction]:

Rob Kirby
Kirby Analytics

Copyright © 2004 - 2006 Rob Kirby

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