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What is MDEF™ Investing? Strategy before tactics. Strategic investments dictate tactical actions in the Metals, Defense, Energy & Food sectors.

- Jeffrey C. Borneman

Horrid PMI From Eurozone - More QE On Way (Inflation At All Costs)

Jeffrey C. Borneman | September 1, 2014

"Draghi has said that the ECB stands ready ... to avoid a deflationary spiral of falling prices and households postponing their spending plans," reports Mike Shedlock of Townhall. 

Investors need to be reminded of some facts. First, the establishment of the EURO was the hope to align the Europeans into one nation - a "United States of Europe", if you will. The dream of consolidation of power to form one country, therefore one GDP, is generations old and was sold as the basis of a lasting peace (After all, Idaho will not go to war with Texas). Since a political union was unworkable at the time (as it is now), it was to be accomplished 'piecemeal' by uniting Europe under a single currency first ... 

Second, the more industrious Socialist countries of Europe (just read Germany) outproduced the less industrious countries (read all of Southern Europe, including France). The imbalance of production versus debt between countries and culture is insurmountable and deadly to the core of the union (Germans don't want to pay Italy's debt).

The savior in all of this is the creation of a wave of Inflation as we have written about here and here. For those wondering how it's working in Japan, read here.

Currently, Eurozone Inflation stands at .3% with a target of 2.0%. Why is this important? Why is Deflation evil while Inflation is the sought-after savior?

Let's look at Draghi's above quote for the answer: " ... avoid(ing) a deflationary spiral of falling prices and households postponing their spending plans."

The postponing of purchases is the dagger-in-the-heart to any Central Bank economy including America. Deflation causes consumers to postpone purchases by recognizing the item will be cheaper tomorrow, or next week. If we are in a clear Deflationary cycle, purchases could be postponed for months as consumers wait for the bottom of pricing. This suffocates the money machine as money literally stops flowing. This downward spiral in purchasing causes hard assets to fall in price - think of the housing drop in 2009. Banks went insolvent holding non-performing loans and assets worth half of the loan value. Investors fully understand the bailouts to banks per the term: Too Big To Fail.

The planner's key to stopping a Deflationary spiral is Inflation. Make the consumer fear a higher price for the goods or services tomorrow to spend the money today - in other words, grease the skids with fear and less purchasing power. This Save The Banks strategy only causes the costs for Food and Energy to climb ever-higher,desperate consumers be damned.

The US experiment in QE is to end next month. Why has the market not crashed as feared? Simple: the US replaced QE with the only budget ($1.1 trillion) passed by this administration. It was meant as a shot of Adrenalin directly into the economy to bolster numbers for the mid-term elections. Real DEMAND in the US is no better than the Eurozone. Watch for more US QE come early 2015 as our Adrenalin shot wears off. 

But this is exactly what Draghi is seeking and lacks: The ability to issue a single budget like the US and cause the perceived Inflation. 

This is exactly what the MDEF™ Investing strategy addresses - periods of Inflation or Deflation. Investors should remember the focus of all countries, and all individuals are the same: Metals, Defense, Energy and Food (MDEF™).

Take a look at the PMI numbers below and see the Deflationary spiral and if you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.

Some of the highlights, or rather lowlights: Dutch PMI 51.7, down from 53.5, Hungarian PMI 51.0, last 56.7; Spain PMI 52.8, Exp. 53.3, Last 53.9; Czech PMI 54.3, Exp. 55.5, Last 56.5; Swiss PMI: 52.9, Exp. 53.7, Last 56.5; Sweden PMI 51.0, Exp. 54.8, Last 55.1; Italy PMI 49.8, Exp. 51.0, Last 51.9 (back into contraction mode to go along the GDP decline and the record low inflation), French PMI 46.9, Last 46.5, Germany 51.4, Exp. 52.0, and Last 52.0 and finally the UK at 52.5, exp. 55.1, and last 54.8, was the lowest reading since June 2013.

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