Over Extended

February 29, 2012
	Since Don is on vacation in Aruba this week (first once since 1987) the weekly briefing will have to wait for his return.  Unfortunately that won't keep me from putting in my 2 cents. Inflation Strikes Once Again! The market took off and hasn't yet taken a breath.  The shorter term cycles have only caused the price to take short consolidations rather than causing any meaningful pull backs.  What could be causing this?  The first thing that comes to mind is fear of inflation. Many people have the wrong definition of inflation.  They think inflation is the cost, or value, of goods going up.  In reality it is the value of the currency being used to purchase the goods, DECREASING in value.  What causes the decrease in value?  If there were only one dollar in the economy today, and another dollar was printed tomorrow, would todays dollar be worth as much?  No. The U.S. cleverly disguises their money printing.  Instead of calling it such, they instead called it QE and QE2 (Quantitative Easing).  Most money that is "printed" is really "created".  Most money is electronic today.  The advent of debit cards and online transactions have decreased the need for good ol' cash.  None the less, there is much more money in the economy after the program than there was prior (chart below). The Europeans have decided to use the U.S. approach as well.  Much to Germany's ire, they are "creating" lots and lots of new money to float their way out of their mess.  Instead of devaluing the bad loans on all the bank's books NOW, they are getting 1% loans from the European Central Bank that don't need to be paid back for three years.  The hope is they can loan that money out to others, with leverage, to make enough to make up for the bad debt on their books.  When they write off the bad debt later, hopefully they will have enough other reserves to stay in business.  Europe isn't calling it QE or QE2 though, instead they are calling it LTRO.  The bottom line is they have created over 850 BILLION euros of new money in the last couple months. Helicopter Ben (Bernanke) hit the headlines in the Wall Street Journal today by stating he "sees temporary inflation pressure".  Genius!!  Maybe HE finally took a trip to the grocery store or filled up his own car with gas.  Look at the money supply chart below (from the Fed themselves) and tell me if you can tell why we might be running into some inflation pressures. Very good!!  Yes, money supply is dramatically increased  due to QE1 and QE2.  We once again printed our way out of a recession (grey areas).   The same is now going on in Europe. This is why, I believe, the market is acting with reckless abandon.  It knows it will have to keep up with inflation and is trying to get a head start.  The good news is it WILL take a meaningful break, have a good pullback and give us a wholesale opportunity to get involved. Have a great day!! John Norquay CEO PivotPoint Advisors		In order to view the graphs and charts in our newsletter, please click the link at the top of your email to "always show images from PivotPoint Advisors" Resources Check out our Youtube Channel  Like our FaceBook FAN Page We manage money inside 401k plans. Know anyone who may want to use us? Click "Forward to a friend" (immediately below) to share this newsletter with friends you think may appreciate our services. Forward to a Friend Twitter Subscribe to the Weekly Briefing Report Unsubscribe Update Subscription Preferences  View Email In Browser