Commodities

Here's some fabulous research from a site I just discovered, Zeal LLC. I found them looking for gold date from 3-5 years ago. When gold was a $270, they were telling people to buy gold because real interest rates were negative. (The fed funds rate was lower than inflation.) According to shadowstats, the real inflation rate is 7.7%. Here's the chart:

I've been doing some thinking and I've come to the conclusion that there's an apparent contradiction in my thinking. I need to make sure that all my ideas point in the same direction so I don't make any self-defeating investment moves. The contradiction involves my belief in the truth of the above chart, while I've made a bet with Al that rates will be below 5% next August. This may be true, but the Fed is between a rock and a hard place, and I made my bet based on my understanding of the Fed's current position. The Fed took great pains to reassure the housing and stock markets that there was nothing to worry about. This was the exact opposite of earlier this year, when Bernanke gleefully terrorized the markets. Right now, the Fed seems committed to a policy of market conciliation. Also, being married to false inflation numbers, and crowing about "core" CPI they will look foolish if they change their tune on it. When the housing bubble pops and the economy falls apart, the Fed will have to lower rates, or at least leave them the same. This means we will have continued high inflation, commodity prices, and a very weak dollar. After they try lowering rates for a while, they may realize that the inflation situation is unacceptable and start raising rates again, but hopefully for my bet, that will be after next August.