More viewpoints (insights?) from one of my favorites, David Goldman. Here’s an excerpt from his latest:
…Most US prices are non-tradeables and reflect first of all the cost of labor. GIven 10% (in fact much higher) unemployment as well as the likely increase in the labor force participation rate due to seniors who find themselves unable to retire, labor costs are likely to remain subdued. Higher prices for international tradables won’t have quite the same impact on the CPI index.
That is why five-year CPI inflation embodied in TIPS-Coupon spreads is hovering just over 1% despite the devaluation of the dollar and the corrresponding rise in commodity prices. As I have been saying for months, the best inflation hedges are international tradables rather than TIPS. Gold is a particularly volatile hedge, because it reflects not only the value of the dollar, but the price of insurance against the prospect that the dollar reserve arrangement will collapse. That is unlikely, to be sure, but if it were to happen, there is no reason why the gold price might not rise by some arbitrarily large margin. That is why the gold price, strictly speaking, is reckoned as an option against the end of the world.
Over time, China will attempt to trade $2 trillion worth of Treasury securities for $2 trillion of production inputs. In this order, China’s priorities are food, food, food, energy, food, iron ore, food, copper, food, and food again. As an Asian growth play I continue to look at production inputs into food. That probably explains why fertilizer companies are among the year’s best performers…
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