Why The Next Inflation Surge Is Closer Than You Might Think (GLD, SLV, USO, UUP, UDN)
Larry Edelson: Right now, I remain bearish most commodity markets. The reason being, they have simply not fulfilled a short-term cyclical test of support. So, more downside is possible in gold (NYSEARCA:GLD), silver (NYSEARCA:SLV), oil (NYSEARCA:USO) and an assortment of other commodities.
But there’s also no doubt in my mind that another inflationary surge is right around the corner. One that may be coming even sooner than I had expected.
For one thing, nearly $4 trillion of printed money is sloshing around the global banking system. Money printed by the U.S. Federal Reserve … by the European Central Bank … by the Bank of Japan … and by the Bank of England.
That money is mainly still in commercial banks’ coffers. It was designed to bail them out. And that it did.
But because loan demand is still soft, the banks aren’t lending. They soon will, and that money — $4 trillion worth — is likely to run rampant through the global economy.
I know. The Federal Reserve and the other central banks are largely following Ben Bernanke’s lead — and they all believe that when the time comes, they can reel that excess liquidity back in, and prevent it from running rampant through the global economy. Thereby snuffing out the next inflation surge.
But in my opinion, there’s no way the central bankers are going to be able to reel that money back in, for two chief reasons …
1. Once the banks start to see an increase in loan demand —instead of hoarding the money, they’re going to use it to make a slew of new loans — which is how banks make most of their profits. And …
2. Believe it or not, the central banks don’t understand interest rates. They think that they can raise rates at the appropriate time and that higher rates will quell loan demand, thereby pulling liquidity out of the system.
That might be true in a more normal economy, but in today’s economy, it’s totally backward.
Reason: Because rates are so low to begin with, as rates rise, it’s likely to have the opposite impact: Investors and consumers will begin to realize that rates are going up — and they are then going to want to buy more, borrow more and invest more.
In other words, as the central banks raise rates somewhere down the road, they’re going to see precisely the opposite of what they intended: A surge in credit and loan demand.
And that means that the $4 trillion the central banks printed will run like crazy through the global economy, pushing up overall price levels.
For another reason, forget reeling in the $4 trillion the central banks have already printed, they are about to print a heck of a lot more!
There’s no question that’s coming. Just look at what’s happening. Britain is now officially back in a recession. France’s economy is slumping. Spain’s economy is toast, in a depression. Portugal’s economy is collapsing again. Even Germany’s economy is starting to slow.
And in each one of the above countries — the debt crisis is getting worse. So I have no doubt the European Central Bank will soon print more money.
The same applies to Japan, who just last week started another round of quantitative easing — printing another $68 billion.
And for the U.S. — where we will have miserable unemployment … where it appears real estate is softening again … and where we have elections in just six months — the status quo in Washington will do just about anything to keep their jobs, including putting pressure on the Fed to print more money.
Bottom Line: There’s no question in my mind that another inflationary surge is right around the corner.
And it will be a big one, the biggest yet. So the questions then become …
“When will it start?”
“What sectors will be impacted the most and what can I do to protect the value of my money?”
And “Where can I make the most profits?”
My answers …
First, while no one can accurately nail down when the next inflation surge will begin, all of my indicators tell me that we should see it by no later than September.
Second, the sector that will respond almost immediately will be none other than the same sector that responded the most in the earlier wave of rising inflation: Commodities, tangible assets, natural resources. We’re not there yet, but we’re getting close.
Third, some of the biggest profits you’ll ever see in your lifetime will also come from the natural resource sector. Because when this next phase begins, it will be a doozy. The price rises we will see in commodities — and in inflation — will be the biggest yet.
In the 1970s, the Fed only printed one-sixth as much money as it has in the past four years. But today, you have access to specialized investment vehicles designed to deliver far-greater profits than anything that was available in the ‘70s … vehicles that could hand you truly massive profits on every $1 move in gold, silver, oil and other tangible assets!
So, as always, stay tuned to this space for all my up-to-the-minute updates on these powerful trends and, best of all, what you can do to protect yourself and profit from them, even and especially in an inflationary scenario.
Related: PowerShares DB US Dollar Index Bearish Fund (NYSEARCA:UDN), PowerShares DB US Dollar Index Bullish Fund (NYSEARCA:UUP).
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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