Who is telling the truth?

January 26, 2011 02:20 PM

Yesterday I received the following update from one of my contributors:

One needs to call what is going on with agricultural commodities for what it is: A PANIC. Fears of food shortages are everywhere that has created a hoarding mentality and an escalation of what seems to be never ending rising prices.” 

This is from a trusted source who follows the markets closely. He is commenting on the huge rally across the commodity sector. It struck me as interesting on the heels of recent blogs I wrote regarding inflation. It is one thing to mention there are strong visible signs of inflation while the Federal Reserve is basically reporting none but quite another to note a crisis situation.

Who should you believe? Well the markets do not lie. Yes this is only food stuffs, what about energy? Crude oil has risen from below $40 at the beginning of 2009 to recent highs above $90. This is going on during a period the Bureau  of Labor Statistics (BLS) and the Federal Reserve are reporting virtually no inflation. The Fed, for the first time, in its January FOMC minutes acknowledges rising commodity prices but dismisses its affect on overall inflation.

Perhaps we should add crisis of confidence in official reports to our list of things to worry about. As the financial crisis—in all of its forms—took root over the last few years we have written on several occasions regarding the disconnect between government reporting and reality. How our leaders denied the credit problem up until a bailout became a necessity. Now they are saying it is ok to print money (Quantitative easing) because there is no inflation, when that is clearly not true.

How can a treatment be the right one when the diagnosis is clearly wrong?

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.