Thursday, June 12, 2008

Tectonic Plates Are Moving

Central bankers around the world think long term inflation expectations drive inflation. Let's quote Bernanke, his statement has been appearing all over Internet in the last 24 hours.

The Fed "will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation," Bernanke said.

They still refuse to acknowledge they are the main culprit--printing too much money, can't they get it?. They think they can frighten the market by talking tough, trying to call the bluffs. Be carefuuuuuuuul, if your last card is 2 and not an Ace. They also trying to intervene in the markets -- exerting psychological pressure. Great student of Sun Tzu, conducting war based on deception and attacking enemy's plan and avoiding attacking city. Will it work?

My readers, I will step aside while tectonic plates are moving. Don't fight the Fed. Hopefully, the Fed will win, commodity will top out, but you know I am a little bit skeptical, don't you?. Asian central bankers have done something more concrete. China raised 100 basis points again for reserve requirement. India raised 0.25% interest rate. Vietnam revalued its currency. But read this from the WSJ:

A year ago, in a group of 24 large developing nations tracked by Bank of America, about three-quarters were either meeting or staying below their inflation targets. Today none of them are. Inflation overall in these countries has returned to levels last experienced in 2002, estimates Fitch Ratings.

Will there be an earth-quake if they failed? Someone said something like this but I can't remember where I heard it, if supply fails to respond, price will continue to rise till it damage demand. Pretty scary, hope it will not happen -- now you know why most people buy a bit of commodity insurance?

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