As many of you know, I have been adamant about the fact that we are going to see rising inflation in the years to come in the United States.  When the Federal Reserve Bank announced that they were going to sink over $1 trillion into mortgage backed securities and long term treasuries it was signed, sealed and delivered that we will see inflation.  There are only two ways that the United States can come up with the money to pay for this commitment: create more taxes for the citizens or print more money.

It seems obvious that President Obama does not want to tax the citizens any more than possible so this is out of the question.  All that remains is to print as much money as possible.  Basic supply and demand states that the more you have of a good or service, the less it will be demanded, hence the value will decrease.  If there are only three houses on Lake Smith then it is likely going to cost over a million dollars to get one of those houses.  If a home builder comes in, clears land and builds over 1000 houses on Lake Smith, the value of all the previous homes will decrease.

This is how supply and demand works even with currency.  If the government is going to print over $1 trillion dollars in an attempt to buy long term treasuries and mortgage backed securites it is well within reason that the value of the dollar is going to greatly decline.  If we see the value of the dollar decline, as it has since the beginning of March, we will see inflation.  Inflation will rear its ugly head in the form of higher prices for consumers.

We will see an increase in the price of goods that it takes to make many of things we use in everyday life.  I would fully expect to see the price of most commodities increase.  Copper, silver, gold, nickel, platinum, crude oil, agriculture and almost all other commodities will see a spike in prices due to the steep decline in the United States dollar.  I have been saying for months that this would be the case and I hope some of you put some capital in these commodities as you are likely to see huge gains over the next five to ten years.

For the first time in quite some time we saw a steep sell off in the United States stock market coupled with the selling of bonds and the US dollar.  It has been that case that this has not happened since the market bottomed back in March.  If there was a selling of bonds, the market went up.  If one direction was created by bonds or the dollar, the opposite happened with the market.  Now, we are seeing all three selling off and this could be the sign that the is much more ahead.

If we see rising inflation, we are also likely to see rising interest rates.  This is something that we have not seen at all during this recession.  So far, this recession has been quite unique because we have seen a deflationary period and low interest rates.  It is going to be hard to imagine just how bad the economy will get if we have rising interest rates and inflation.  I know many analysts feel that things are getting better, but if we see inflation come to fruition before we are out of this recession, that is very bad news.

When doing some technical analysis of the United States stock market, we find ourselves at a huge resistence level.  The 200 day moving average of the S&P 500 is 936 and we are currently at 887.  It would be no surprise at all if we saw the 200 dma serve as the last gasp in this secular bull market.  Since March, the market has made a beeline higher and we are going to eventually see a pullback.  The question that must be answered is “is the pullback going to show lower lows than those of October and November of 2008?”

I think so!  Unfortunately, there is very little data that proves to me that this economy is getting better.  We have yet to see any signs that the unemployment rate is getting better.  Businesses in all sectors continue to cut jobs.  Recent college graduates are finding it very difficult to get an interview, no less a job.  If all of these things are reigning true then how is the economy getting better?

The worst part about it all is the fact that the increase in the stock market and the positive outlook from the media may have given too many people false hope.  The worse thing you can do to a human being is give them false hope.  I have many friends and family members that truly believe that the economy is getting much better so they are going out and spending money on things that they always thought were attainable in a good economic period.  Open your eyes people.  I think we can all name at least ten of our friends who have been laid off or who cannot find a job.

This economic crisis has a very strong chance of getting worse.  If the government continues to devalue the dollar and unemployment continues to rise, how is the economy going to get better?  Unfortunately the government is not allowing free markets to work.  If the government would keep their hand out of the pot, let people and businesses go bankrupt and flush the system of all the “turds” the economy would get better.  It would definitely take time, but MUCH less time than it is going to take if we continue to prop up the entire country.

If you have money to invest in the current economic state, I would suggest commodities.  Ticker symbols DBA, DBB, DBP and DBE are all good choices.  If you want to invest in particular commodities, check out USO, GLD, and SLV.  It is likely that the recession is going to continue with rising interest rates and rising inflation so take advantage of the investment opportunities.