Inflation in China, The Price of Oil

The buzzword today is caution. Caution about current misleading headlines. Caution about failing to seek out and follow the trends.

The Effect of the US Fed Debt Purchases

I previously commented on how it was so odd that the stock market jumped up at the same time as the price of gold jumped up, both in supposed reaction to the US Fed announcing a new $600 billion addition to purchases of debt, yet these actions seemed odd to happening simultaneously.

Stock Market Manipulation
Now, a scant 3 days later, both the market and the price of gold have fallen back quickly. There is an old belief that stock market manipulation can only be a short term effect and that sooner or later, the market corrects. Whether the market accurately reflects anything at all, is a question for another time, as I believe manipulation is standard fare. But this case is unique.

If one looks back to previous US Fed manipulations since the year 2008, a similar occurrence is evident. Now you can believe that:
– the market jumps up and then collapses back, all in a few days because it is natural; or you can believe
– that the US Govt manipulates the markets to give credence to its actions; or you can believe
– that Goldman et al sees the manipulation coming and takes advantage to take some more money for their fancy cars and lavish lifestyle.

Whatever you choose as the rationale, the point is that the average investor just gets hurt by watching and following the daily machinations of the pundits, and the ‘speak’ from the talking heads. Look for trends and follow those trends. Don’t believe the daily headlines.

China’s inflation rate has just hit a two-year high, largely thanks to rises in food prices, despite the government’s efforts to dampen price rises.

October inflation hit a higher-than-expected 4.4%, up from September’s 3.6%, the Bureau of Statistics said. It added that the government needed to do more to control price rises. Beijing has introduced a number of measures, including raising interest rates and curbing bank lending, to cool rapid economic growth and price rises.

Separate figures from the statistics bureau showed that industrial output in China rose by 13.1% in October compared with a year earlier, slightly slower than the 13.3% increase recorded in September, while retail sales rose by 18.6%.

A standard occurrence is that prosperity breeds excess spending power, which breeds increases in the cost of items as there is more money to spend, and so on. This is one of causes and effects of inflation. Now in the country that supposedly is the economic engine of the world for the next few years, inflation is rearing its ugly head. This is a trend.

What to do. Buy items that are in demand and that will have a rising price, especially in foreign currencies.What a great currency hedge
The Price of Oil

That oil price shock may becoming. The average price of US gasoline is $2.80. It is again headed higher. It will not be long before the $3-plus number starts to make the headlines. Diesel is already above $3 in the US.

Meanwhile the toll from the de facto moratorium on deep water drilling continues. America’s oil import dependency is worsening, and the further new laws that demand the shut down of low producing oil platforms offshore – oil platforms that could in the future become economically viable again with new technology – worsens because of it. Barclays Capital reports (November 4) that “There are no signs yet of any rejuvenation of US Gulf activity. Oil drilling in federal offshore waters remains at just 14 rigs, some 40 rigs lower than this year’s pre-Macondo peak, and six rigs lower than at the start of September.”

An overweight position in energy, and especially in oil, is following a pretty obvious trend.