Commodity inflation is not real inflation. Commodity inflation is China- and speculation-driven inflation of imperfect commodities by fearful or greedy customers and traders.
Yet "inflation" is on everyone's lips as if the plummeting prices of cars and homes and wages don't even matter. You read about the not-even-nascent recoveries in countries like those in Eastern Europe or Mexico or Germany, and you have to wonder whether we need to be as fearful of the price of copper as we are. If you own GM (NYSE: GM) (Cramer's Take) bonds, you are not experiencing inflation, and believe me -- there are more GM bonds being bought than there is of the red metal.
Most important, deleveraging -- what you see every day with equity issuance -- is dramatically deflationary and an admission that the physical assets purchased with the debt are worth much less than we might have thought.
My nose senses we are about to have another round of discussions of stagflation coupled with endless handwringing about how the weak dollar is eroding the bulwark against inflation.
Oddly, the people who are saying it tend to be the same ones who declared the recession over in March. I always have to remind these people they have it quite wrong: the depression ended in March, where deflation seemed unstoppable. That was when Citigroup (NYSE: C) (Cramer's Take), Bank of America (NYSE: BAC) (Cramer's Take), U.S. Bancorp (NYSE: USB) (Cramer's Take) and Wells Fargo (NYSE: WFC) (Cramer's Take) had their obituaries written by the two most implacable forces at the time in the investing universe -- Professor Roubini and Meredith Whitney. (Because I am a harsh critic of the scene, I now dub them "Professor and Maryanne," who would turn the millionaire and his wife into paupers.)
Since then, we have climbed out of the garden-variety depression into a severe recession with terrible job loss but perhaps manageable deflation, except for the demands of China and the speculators who run ahead of them.
It's better. It's not 4,000-points-off-the-March-bottom better, but it's not 1,000-points-better, either.
It's something in between.
Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer was long Wells Fargo.
Entrepreneur's Journal: Want to get a piece of the Buffett/Goldman honeypot?
The week in preview: No turkey earnings from Tyson, Hormel, Cracker Barrel ...
Comfort Zone Investing: Intel is saying something ... can you hear it?
Reader Comments (Page 1 of 1)
5-21-2009 @ 10:38AM
beachpaul said...
In between your ears. Roubini is right. We are right back to the 8200 floor, where we were 6-8 weeks ago before that floor collapsed. Whatever gains were made should be cashed out already. If not, those gains will soon evaporate. Psychology plays a role in market movements but the fundamentals are what matter most. Fundamentally, the numbers haven't changed the past eight weeks. Thy don't lie, people do.
5-21-2009 @ 11:09AM
Iridium said...
Jim, commodity inflation causes wholesale inflation. If what you use to manufacture or transport anything goes up in price, EVERYTHING WILL GO UP IN PRICE.
Unless corporations are unable to raise prices due to the recession. In that case margins will be squeezed past the point of no return and you will have wholesale bankrupcy.
Either way commodity inflation is the most dangerous aspect of what is going on right now. Ask a retail display company what happens when the price of steel skyrockets. They can no longer provide an economical solution to the companies they manufacture for. They go out of business.
The massive speculation for profit by the commodity terrorists is causing the total destruction of our economic system. If this continues within 6 months nearly every small business in America will be bankrupt. That is what the big guys want though.