Beware, Worse Conditions May Come!

The Fed released it's minutes yesterday and true to many expectations they are very concerned about the inflation numbers being released; .3% of latest note. What impacts inflation? Well a host of items called "a bag of goods" sampled by the CPI index. Two of the main factors contributing to this index are Oil (closing at a record high 1 day ago above $100 a barrel) and Food costs (Wheat and Corn demand has really shot up lately) and Milk is approaching the ridiculous range! Why are these so closely monitored? Because these are the KEY ingredients to the "bag of goods".

Now with that being said traders have refused to put money into bonds until late yesterday and early this morning. What do they do with their money when in panic mode? One of two things happens; they either stash their money into Gold currently trading at an absolute ridiculous $948.00 an ounce or "put it under the mattress" (i.e. a money market account). Therefore bonds have really taken a hit the past week raising rates over a 7 day period faster than any other period over the last 10 years. Hopefully this trend has changed today as we are seeing traders put money back into bonds even though inflation is on the rise (inflation is VERY bad for any fixed asset avenue).

What does all of this mean? The Feds mentioned in their report that "if necessary and likely" they would continue their rate cuts. However, they also mentioned that once the economy got back on track they would raise them VERY fast to help curb the growing inflation problem. Why? Because we need a strong dollar to function in a "normal" economy and inflation simply put weakens the value of "our" dollar.

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