When inflation knocks

PPI at .6 percent in January. It’s not quite as easy to disguise producer’s prices as it is to exclude “volatile food and energy prices”, and when they show up in the CPI, it’s in significantly reduced form. But that’s a rate of 7.2 percent inflation, which means that money market funds will soon be openly inverted if the Fed doesn’t raise interest rates soon. Stephen Roach of Morgan Stanley is already calling for an increase of three percent; imagine what that will do to all those idiots who, at a time of all-time record low interest rates, opted for an adjustable-rate mortgage. I’ve read that as many as 25 percent of mortgages are now ARMs, which is just another way that the mortgage banks are setting their clients up for some serious financial raping and pillaging.

Gold never quite touched its 200-DMA, but it got close – 390.50 on March 3 with a 200-DMA of 385 – before jumping back up to 420. Silver is still snorting and stamping and moving up, while the Economist’s dollar-based index of commodities is up 28 percent on the year. Given housing prices, I daresay that’s a lot closer to the true dollar inflation than the fictitious CPI.

As usual, Mogambo’s on the case, this time ripping the hot-and-heavy home-buying crowd:

1) Prices are at historical highs, and are also at the end of a long series of setting new records.

2) Prices are a record-setting multiple of the buyer’s incomes.

3) This is at a time when interest rates are insanely, abnormally, fraudulently low, manipulated to negative real, inflation-adjusted rates

4) There are record deficits in almost every layer of government in the country, thus state and local taxes are sure to be raised.

5) Real-inflation-adjusted incomes are still falling after decades of declining real incomes. And if you also adjust for the increase in total taxes paid to all the different layers of tax-levying authorities, the real, net-of-taxes, inflation-adjusted and cost-of-government adjusted-incomes are hitting the bottom of the barrel.

6) We are at the tail-end end of a long, long series of booms, most of which have not busted yet.

If you’re looking to sell your house, this is inarguably a good time, and quite possibly a great time. If you’re looking to buy, think about renting for a year or two and buying when prices are lower. But if you must buy now and want to take advantage of the low-rates, whatever you do, get a fixed-rate mortgage. But even if Greenspan and company can pull one last boom out of their hat, so what? The point isn’t to get off the ride at the peak, it’s to get off safely and profitably.