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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

Inflation News

$5 Is The New $1

Jeffrey C. Borneman | August 23, 2014

The rapid rise in Inflation is not a new story to investors or consumers but my friend Charles Hugh Smith's piece below is an interesting perspective which I suggest you read. Presented without further comment:

We are constantly reassured that inflation near-zero--2% annually or less. On the ground, it seems that stuff manufactured in the global supply chain is still relatively cheap, as are energy and food, at least compared to what they cost elsewhere or could cost if supply chains get disrupted.

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$5 is the new $1
By: CH Smith Oftwominds Original Article Date: 2014-08-23

Inflation News: CPI Up .3% June - Mostly In Energy

Jeffrey C. Borneman | July 22, 2014

"The Labor Department said on Tuesday its Consumer Price Index increased 0.3 percent last month, with gasoline accounting for two-thirds of the gain, after May's 0.4 percent rise," reports Reuters. And this is good ..?

"Stripping out food and energy prices, the so-called core CPI rose 0.1 percent, slowing after May's 0.3 percent increase." Which would be fine if every human didn't require Food and Energy. 

Just a reminder to investors that the CPI has undergone 27 revisions (how it measures Inflation) since the Carter Administration. You see, we're not supposed to understand how Inflation works; how it is the hidden tax everyone must pay (regressive), and most importantly; how Inflation is viewed by central banks as the crucial tool in controlling currencies and economies. 

I've written (here and here) that Inflation is desperately sought by central banks and the IMF. Here is how the topic of Inflation is couched so consumers assume its necessity: "Inflation is creeping up as the economy's recovery becomes more durable, a welcome development for some Federal Reserve officials who had worried that price pressures were too low."

Investors should read the recap linked below, but do play a round of Spot-the-DEMAND. If you would like to know how the MDEF™ Investing strategy positions clients to take advantage of Inflationary pressures, or if you'd like a no-commitment portfolio review, do contact me directly:

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U.S. consumer inflation rises on high gasoline prices
Reuters Original Article Date: 2014-07-22

The USD & The Elephant - How To Eat Them?

Jeffrey C. Borneman | July 21, 2014

The answer, of course, is one bite at a time. On the heels of last weeks' kickoff of the BRIC's bank to challenge the USD/IMF/WB, we learn the Swiss have taken a seat at the USD-eating table.

It's a relatively small currency swap deal "allowing the two central banks to buy and sell their currencies up to a limit of 150 billion renminbi, or 21 billion Swiss francs ($23.4 billion)," say Dow Jones, but traders I've spoken with have said, Oh no! Not the Swiss too!

"Switzerland is the latest of a series of countries to set up swap lines with China, which is keen to promote the international use of the yuan." 

Investors will understand what "promote the international use of the yuan" means. It means that China and the BRIC nations intend to have a currency that will, one day (sooner is better for them), challenge the USD's status as the world's common currency. The USD is being devoured one bite at a time. The more the USD becomes irrelevant to international trade, the higher the Inflation rate US consumers will experience as our dollars will purchase less and less in the international arena. Remember, Energy (oil) is priced by the world market and not by domestic producers ...  

The question investors must ask is: As Inflation continues its controlled rise, where is the breaking point where the consumer chooses - or is forced - to purchase only necessities versus what the consumer may desire? This is the reason the MDEF™ Investing strategy exists.

Here's a money quote from the Dow Jones story (full article follows):

Last year China signed swap agreements with the European Central Bank and a clutch of others, including the U.K., Brazil and Indonesia.

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IMF Warns US - Very Serious Inflation Implications

Jeffrey C. Borneman | June 16, 2014

Inflation is the goal. Let's all say it together: INFLATION is the GOAL. The IMF was established to create a new international monetary system (from the ashes of WWII) that would stabilize currency exchange rates without backing currencies entirely with gold. That's it ...

Mission Creep

The IMF now see fit to dictate both monetary and fiscal policy in its member states (180 at last count). Today's comments by IMF Chief LaGarde began by lowering the 2014 US GDP estimated growth rate from 2.8% to a mere 2% (she's late to the party), and suggesting (not dictating yet) the US increase its minimum wage, increase infrastructure spending and limit (eliminate) itemized deductions. This is far, far beyond the IMF's original mandate and would be comical - unless our leaders agree. The US has encourage the IMF mission creep since 1946 and now the IMF guns are pointed at it.

Effect

If any of the IMF "suggestions" are acted upon, it will introduce the next leg up in the Inflationary cycle. The cycle is simple: Capital always chases DEMAND so reduce DEMAND by high Energy costs which causes DEMAND for goods and services to contract resulting in higher unemployment. Capital seeks a return so bids up all stock prices: essentials and non-essential alike. Tax revenues decline which cause a further strain on government services provided now by borrowing/printing, which pushes Inflation higher. Consumer DEMAND dwindles for non-essentials as consumers are forced to choose between need and want. And this is the Inflation cycle the IMF (and NYTs) sees as necessary to maintain the status quo. It is helpful to stop here and understand that world wide DEMAND is weak (or negative) based on US consumer weakness; and all Inflation of Energy and Food prices in the US are exported to poorer countries who have limited or no choices to adjust. World history is replete with examples of what people do when hungry. 

Investor Options

If you noticed above the culprit of dwindling DEMAND is high Energy prices. I've stated before that Energy prices cannot be allowed to fall (too many countries are reliant on high Energy prices for military and social needs). The USD, although not backed by a Gold standard, is in fact the backed by Energy. It is not surprising the US will not allow a Manhattan-like project to easily produce its own Energy as fossil fuel in the ground is understood as money in the bank. And, the cheaper the Energy, the weaker the USD. The MDEF™ Investing strategy is based on an understanding of these (an other) factors. If you'd like to know more about MDEF™ Investing; its performance and management in this cycle, contact us directly.

Here's a money quote from ZeroHedge (full article follows) - spot the IMF hubris, low Inflation comment and the hint the US Fed is overwhelmed:

The Washington-based IMF now sees the world’s largest economy growing 2 percent this year, down from an April estimate of 2.8 percent. The IMF left a 2015 prediction unchanged at 3 percent, and said it doesn’t expect the U.S. to see full employment until the end of 2017, amid low inflation. For the Fed, the forecast means “policy rates could afford to stay at zero for longer than the mid-2015 date currently foreseen by markets,” the fund said in its annual assessment of the U.S. economy.

Deflation is Evil, Inflation is THE Answer

Jeffrey C. Borneman | June 5, 2014

Investor's have waited for today's ECB new for weeks and the official language and actions are clear: the enemy is Deflation; the savior is Inflation.

Short of declaring a EuroZone version of QE, rates were lowered into negative territory an effort to steer capital to the "real economy." The penalty misses the unspoken problem: without real DEMAND, no one wants to borrow money, hence Deflation. Let's ask why would a business would logically take on debt without a reasonable expectation of leveraging it into further profit? The ECB action is akin to "the beatings will continue until the attitude changes ... " but just in case it doesn't, " ... its commitment to use unconventional instruments if needed "to further address risks of too prolonged a period of low inflation". The ECB's Draghi mentioned Inflation as the cure no less than five times today. Yet not one credible economist - not one - has ever addressed the underlying issue: How are Inflating asset costs and prices - by any means necessary - meant to boost DEMAND? Japan's Abe played his Inflation card and is watching Inflation explode only to see it killing DEMAND. The US has infused its economy with $9T, near-zero rates and under-reported Inflation, and DEMAND is negative (see: Q1 GDP). Investors would be wise to consider investing in non-discretionary areas. Said another way, consider companies that produce products which Americans can literally not live without. Here's one quote to consider (full article follows):

Conservative German economist Hans-Werner Sinn of the Ifo institute said the ECB's moves smacked of desperation and would not work. "This is a desperate attempt, with ever cheaper money and penalty rates on deposits, to shift capital flows to southern Europe in order to stimulate growth there," he said.

Read the Original Article

Japan's Economic Suicide - But Inflation Was the Answer

Jeffrey C. Borneman | May 30, 2014

The population of Japan is now experiencing the effects "the red pill." That promised elixir of Inflation meant to lift Japan from a generation of no-growth misery and second-class economic status, has utterly failed. The results are clear to any nation wishing to Inflate by liquidity.

Every measurable economic barometer from household spending, industrial production and retail sales, has plunged. The mad effort to print yen (flood the markets with liquidity) has only produced an enormous rise in the Consumer Price Index (Inflation) without the promised growth. Any adult with a basic understanding of markets could (and did) foresee this - the problem was, Japan elected another adolescent promising easy prosperity. Like it or not, we have a global economy. What happens in Japan will affect both Asian and European markets (that can ill afford less DEMAND for their products) and eventually the US (ditto). Investors must remember what will always be in high DEMAND - that is the focus of the MDEF™ Investing strategy. Here's the money quote, play another round of Spot the DEMAND (full article follows):

With domestic demand likely to fall, we see external demand leading growth in FY3/15. We highlight risk factors in the form of protracted weakness in China and other Asian economies and a decline in corporate Japan’s structural export capacity.

Read the Original Article

Memorial Day Update on Food Inflation

Jeffrey C. Borneman | May 23, 2014

Add rising cost to a dwindling source-of-production; mix thoroughly with constant DEMAND, and the result is consumer sticker shock.

It was a given that Food costs would rise dramatically. The causes are too many to list here but the article below cites the droughts in various locals. Those watching California's drought know the lack of water for farming was intentional. For the 50 million people on Food Stamps, the actual cost of Food is a non-issue. For the "rich" any increase is inconsequential. Rising Food costs hit the middle-class hardest and DEMAND for Food will only abate as the population shrinks. Investors would be wise to compare what actual Food costs are before assuming any data coming from the USDA is correct. Here's my pick for the money quote from them, see if it correlates with your experience as a consumer (full article follows):

That is up from 2013, when retail food prices were almost flat, but in line with historical norms and unchanged from April's forecast.

Read the Original Article

EPA's Rule-Making War on Energy: Accelerating Inflation, Job Loses, Hunger & Fear

Jeffrey C. Borneman | May 13, 2014

Taken to logical extremes, the un elected EPA rules would have us vying for burning dung for cooking and heat.

In all seriousness; if any intelligent person were to take any current EPA proposal on either The Clean Air Act, or Clean Water Act, and visualized the logical and expected outcome, we'd be lucky to only scroll ourselves back to the mid 19th century. There is an active war afoot, cloaked in vibrant green, meant only to Inflate prices of necessary goods that will eventually cause American deaths. Here's the money quote (full article follows):

The proposed rule is an example of regulation at its worst in that it attempts to direct market forces with only the vague hope of being able to deliver real benefits,” ERCC said. “Unfortunately, the costs of the proposed rule are very real in terms of limiting future electricity generation options, with consequent potential threats to electric reliability, affordability, and all of the economic and health harms that are associated with those results.

Read the Original Article

Coal Rules Will Devastate, Say Biz Group
The Hill Original Article Date: 2014-05-13

How To Stoke Inflation - Instill Fear

Jeffrey C. Borneman | May 10, 2014

Tomorrow we are treated with the revised IPCC Climate Report.

Tomorrow we are treated with the revised IPCC Climate Report. The president will make comments as to how man-made climate change is costing taxpayers billions and billions of dollars in lost _________ (fill in the blank but listen for comments on the California drought). We will be treated with a very long and fear-inducing list of ways we are killing ourselves and our posterity. What you won't hear is how the cost of Energy and Food will rise as a result of any further attempt to placate Gaia - or how restricting our Energy use will cause all costs to rise and add to the unemployment problem. You also won't hear about the resulting military conflicts that will ensue from exporting US Inflation. Here's the money quote (full article follows):

The Obama administration will likely use the 840-page report as scientific justification to reduce emissions of heat-trapping gas from the burning of fossil fuels, such as coal, gas and oil and to encourage local communities to adapt to changes in the climate.

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Final Fed Climate Report Will Present DIRE Picture
AP Original Article Date: 2014-05-08

No Pleasure in Being Correct ...

Jeffrey C. Borneman | May 10, 2014

... on this one. At least the writer got Yellen's relevant comments in the front of the article to spare us reading time re the strength of the US economy. 

DEMAND is dismal and Yellen confirms it. Note she mentions again achieving the target Inflation rate The Fed's answer to the current conundrum is higher prices which consumers cannot afford at an increasing rate. Here's the money quote(s) (full article follows):

(Yellen) " ... believes the economy still requires a strong dose of stimulus five years after the recession ended because unemployment and inflation are well short of the Fed’s goals.“ And: "A high degree of monetary accommodation remains warranted,

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Yellen Says "High Degree" of Accommodation Still Needed
Bloomberg Original Article Date: 2014-05-08

The Fed & Future DEMAND

Jeffrey C. Borneman | May 7, 2014

Why DEMAND is fading - it's the USD and a desperate Fed.

Today we learned what the Fed sees via DEMAND for goods and services in the US economy. Essentially I was correct when I stated that QE, while lessened, will not be abandoned. This is Inflation. 

“A high degree of monetary accommodation remains warranted ... ".

Read the Original Article

Original Article
Bloomberg

Why DEMAND is in Free Fall

Jeffrey C. Borneman | May 1, 2014

This should surprise no investor. It is certainly no surprise to the Fed as it sees these numbers in real-time. Investors don't need that particular luxury as trajectory is just as valuable.

This should surprise no investor. It is certainly no surprise to the Fed as it sees these numbers in real-time. Investors don't need that particular luxury as trajectory is just as valuable. There are many money quotes, here's the one I chose:

One-fifth of the families in the entire country do not have a single member with a job. That is absolutely astonishing.'

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The Real Unemployment Rate: In 20% Of American Families, Everyone Is Unemployed
By: Michael Snyder Zero Hedge Original Article Date: 2014-04-29