At what point is the Fed and Bernanke going to realize that we and the world are experiencing higher inflation?

It seems as if the rest of the world is beginning to realize it and we are late to the party. The UK is close to raising rates, India recently raised, China is looking to cool growth, and the ECB and Trichet are becoming increasingly hawkish with their rhetoric driving the euro up and in turn making inflation in the US more relevant.

Why does the Fed not see what is plainly on the wall? It is because they are all economists and do not stray away from their “models” that they were taught at their ritzy schools. They believe that CPI ex food and energy is the correct way to look at inflation. How is that the right way to look at things? Food and energy, in my opinion, are two of the key and crucial aspects of peoples lives. Everyone knows what is happening with food prices and commodities in general. No matter if it is cotton, beans, corn, oil, gold, etc. Everything is increasing in price and becoming more expensive to buy.

The problem is that the people who make decisions on whether or not we have inflation do not stray away from the models. The perfect example of this is Rick Santelli and Steve Liesman on CNBC. Liesman, who is an economist, always argues that the Fed is doing things right by not looking at food and energy. He is in the same boat and does not step outside of the box to look at prices and inflation. Santelli on the other hand is a trader, has been in the markets for years, and does not have certain models to follow. He understands how things actually work in the real world. He understands that at some point these increases in commodity prices will eventually get passed along to consumers and we will ultimately begin to feel the effects of inflation.

I was listening to Warren Buffett this morning on CNBC and he began rattling off all of the commodities that he uses in the companies that Berkshire owns or is involved in. He then told everyone to go and buy their underwear today because soon enough people are going to feel the pain of increased cotton prices. This is the exact take the the Fed needs to take. Buffett is not an economist and he is not restricted to “models”. Buffett is a business man and investor who is out their in the world, buying these commodities to produce goods, and realizes their increased costs will ultimately be pushed through to the consumer.

At what point will the Fed begin to realize this? Will it be too late? Hopefully not and hopefully they step outside of the models and look at these markets and realize these prices are beginning to be a problem and a concern for everyone.

Marc Fabor, of GloomDoomBoom.com, was on CNBC this morning. I couldn’t agree more with pretty much everything he said on the show. Whether that be his remarks on the Japanese Yen and it’s possible meltdown or his absolutely straight forward remarks about Bernanke not understanding the world economy and only paying attention to the S&P’s. I also loved his sarcastic remarks when he mentioned QE8 and then immediately corrected himself and apologized because he meant QE18. Really good stuff, take a look.

Andrew here. The inverse oil to equity trade has nearly vanished and was only a good trade for a few days. It is amazing how fast those type of trades go away. The trade has become farely confusing intraday looking at the net changes. We have mentioned this before and have talked about it within our office, it feels like the only way you can make money some days is if everything is lined up. By that I mean if you want to sell equities, in this current middle east crisis, you must have bonds rallying or positive, oil rallying or positive, gold rallying or positive, as well as  yen and swiss rallying or positive. Wihout that perfect type set-up happening it is hard to put a trade on and things do not entirely make sense.

Looking at a longer term picture and trying to flush out that intraday or intra minute junk you can try andget a feel for what you what to do or how to attack things. Looking at all these markets I am starting to look to be bearish gold. You have bond which are staying weak and now you have the risk type currencies finally making a turn lower like we were talking about before with the yen and swiss.

Looking at a daily chart (click on charts to see larger view) you can see the swiss has come off from 10869 to 10680 since March 2nd. Same goes for the Yen over the same time period. It has gone from 12261 to 12036. You are also gettign an equity market that will not stay down. it is a resilient piece of garbage that makes you want to beat your head against the wall. I have given up on trading the equity markets. I am bearish them which is an impossible stance to take because you are fighting the FED pumping them up. I had two options, stop trading them completely until all the QE nonsense is over or like our friend Tony LaPorta over at www.nakedtrader.com says, “Just close your eyes and buy them.” I cannot do that when i have a bearish stance so my only option is to stay out of them completely.

We heard a think tank come out and say that some FED officials are becoming restless with rates so low. This coupled with the safety currencies beginning to turn slightly lower makes me start looking at being bearish gold. The only problem I have with being short is that we still do have tons of problems in the world and that could ultimately put and keep a bid in that market. But looking solely off of other markets (Swiss, Yen, Bond)  I am starting to get a bearish mindset.

Good luck the rest of the trading day.