Inflation's Latest Warming Etched In Steel

Bill Fleckenstein MSN Money April 5, 2010

Rising steel prices -- a symptom of the nation's money printing -- are a harbinger of increases in other industries. Plus: The odd man out in the smart-phone market.

Pretend it's 1933, as so many in the deflation camp think it is or soon will be (at least from the price-of-everything standpoint). If last Wednesday you reached for a copy of that day's Financial Times, would you have expected to see the following headline -- "Steel prices set to soar: Everyday goods will cost more" -- in large print above the fold?

How to fight inflation

The newspaper went on to say: "Global steel prices are set to rise by up to a third, pushing up the cost of everyday goods from cars to domestic appliances, after miners and steelmakers yesterday agreed to a ground-breaking change in the iron ore price system."

All along, as I've talked about money printing, I have said it was not possible to explain in advance which goods would climb in price (or when). I just knew that as the new money was put into circulation, prices would ultimately rise. Now they have, to some degree, for various items. Steel is a great example along with other base metals, oil, health care, insurance and taxes.Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 304, 314, {"configCsid": "MSNmoney", "configName": "player-money-4x3-articles-inline", "player.vcq": "videoByUuids.aspx?uuids=0d73d8fe-54fc-41bc-b9a3-d95f4a2b6448,d32830a7-bcb1-4518-a7d9-a8ab97e9fa18,b7d6df69-1e7e-491d-9550-101ccb921985,ce2803e1-36a2-4542-8061-2866ba89563a,9ed0fb64-9cbc-43fa-a7e2-1912994d04d7,ffc1475d-4cd3-437d-b10d-399ed5e3a58b,f9b80fe2-41dd-4d5e-a9f8-2d9c45c26927", "player.fr": "iv2_en-us_money_article_Investing-ContrarianChronicles-inline"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=0d73d8fe-54fc-41bc-b9a3-d95f4a2b6448,d32830a7-bcb1-4518-a7d9-a8ab97e9fa18,b7d6df69-1e7e-491d-9550-101ccb921985,ce2803e1-36a2-4542-8061-2866ba89563a,9ed0fb64-9cbc-43fa-a7e2-1912994d04d7,ffc1475d-4cd3-437d-b10d-399ed5e3a58b,f9b80fe2-41dd-4d5e-a9f8-2d9c45c26927;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');One shouldn't underestimate the psychological impact of an "event" like this, because at some point other industries will try to raise prices (some will be able to, others not), and intermediaries will attempt to pass along the price increases they get. At some point, price increases will become acceptable or almost expected, and that's how inflation eventually takes hold.

I'm not trying to claim the rate of inflation is ready to ramp up drastically. But there are so many people who are so rabidly dogmatic about deflation -- and very few, except perhaps myself and a small handful of folks who anticipate otherwise (and even I don't expect an imminent rise in inflation) -- that relative to what I think are well-entrenched deflation expectations, this rise in the steel price ought to be a shocking development.With this ring tone, I thee wed And now for a business whose products only decline in price over time: cell phones. Last week The Wall Street Journal reported that Apple (AAPL, news, msgs) was building an iPhone for Verizon (VZ, news, msgs).

That should have come as no shock. Those who've been paying close attention to the cell phone world have known this was inevitable. Why? Because AT&T's (T, news, msgs) exclusivity agreement with Apple is believed to be ending sometime around June, and Apple has pretty well milked the phone company's subscribers. Thus for Apple to grow, it needs to sell its phone through Verizon.

However, there are a few moving parts to this looming relationship. Verizon has no desire to pay through the nose as AT&T did, so it wants to play up the Droid-Google (GOOG, news, msgs) phone and its much-better network as bargaining chips. That means it may be a while before the terms of the Apple deal are sorted out.

Nobody is more secretive than Apple about what it plans to do next. However, in order to actually produce and introduce its product, Apple needs to enter the phone-production food chain to design and build prototypes, etc. At some point a new product of this magnitude simply can no longer be hidden. That is most likely why we are finding out about it around now.

This is good news for Verizon, and folks who've been getting dividends from that stock are now liable to be in for some capital appreciation, too, over the next year. Apple, as well as Qualcomm (QCOM, news, msgs), which is a beneficiary of CDMA, or code division multiple access, will probably see boosts when this comes to pass (though only Verizon seems like a legitimate bargain).

Continued: The odd man out More from MSN Money

A whole new brand of inflation

5 ways to profit as food prices rise

Why this is a rich man's recovery

Still printing money at full speed

Foreign versions of our coming crisis

1 | 2 | next >

Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=7.971014; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=138;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board MSN Money InsightNew Investor CenterMarket DispatchesJubak's JournalTop Stocks blogCompany FocusContrarian ChroniclesSmart Spending blogFast AnswersDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingRecent Contrarian Chronicles ArticlesAnd now, the great health care bailout 03/26/2010What really broke the banks 03/19/2010Still printing money at full speed 03/12/2010More . . .Contrarian ChroniclesAbout Contrarian ChroniclesLearn the Contrarian Chronicles lingoSubscribe to Market Rap on Fleckenstein CapitalFund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='pyfqivhdpeby4wqwtq46khdi900gf389';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 6 of 6PreviousNextb_capp #1Saturday, April 03, 2010 12:30:24 PM

For the past few years I've respected your opinion regarding the housing bubble and the Bernanke printing press. I disagree strongly with your 'inflationary thesis' for one reason.

The costs of production have risen very much in the past year. Copper, nickel, iron, aluminum, zinc, and all other metal prices have nearly doubled in the past year. See http://www.kitcometals.com/charts/copper_historical.html along with the price of oil. As your article mentions the producers of products made from these metals ( and plastics which depends on oil ) must raise prices in order to 'record a profit' for making the widget.

And yet in the past year, 'average joe's wages' HAVE NOT DOUBLED. Joe's wages aren't even keeping up with inflation as described by the BLS here

http://www.bls.gov/schedule/archives/empsit_nr.htm#2009 . Joe's weekly earnings in March 2010 were $629. In March 2009 Joe's weekly earnings were $613. Simply put, Joe's pay for work isn't keeping up with inflation.

SO UNLESS JOE CAN GET A LOAN TO BUY THE WIDGET HE CAN'T COME UP WITH THE MONEY.

Got news for you, Bill ... Joe is broke ... as described here

http://www.federalreserve.gov/releases/z1/Current/z1r-2.pdf

Deflation occurs when debt is wiped out via bankruptcy ... that's why deflation is still the name of the game.

ReplyReport Abuseplains 701 #2Sunday, April 04, 2010 4:58:11 AMPersonally, I'm investing in both mutual funds AND lead. With the uncertainties of the past couple of years and the overspending that is Washington lately, a good bit of lead on hand will help immensely in the rather questionable future of the next few years. My Purchases in ammo components and loaded ammo have gone up in value roughly 100% in the last five years. As the Orient buys up the rather limited resources for lead, copper, tin, etc. to make us out favorite electronic gadgets, they will only be more valuable. Couple that with the gun banners controllingcongress, and the attendant supply shortages caused by the mass purchasing occurring due to fears of their intentions, and it's a can't-miss investment. Not that all Dems are bad, I've even voted for a few. The ones in control at present do not seem to be on the same page as me on some issues. That will breed uncertainty, and that will fuel prices. Supply depletion due to ongoing conflict around the world is pushing prices a good bit too. ReplyReport AbuseGas Guzzlers #3Sunday, April 04, 2010 12:28:35 PMbcapp you are flatly wrong about aluminium prices... It hasnt moved over past 40 years or so... Copper finally caught up with the times five years ago as prices went from $1 to $4 a pound.. Aluminium remains stuck in a time warp... Recent steel price increases should be good news for aluminium investors as industrial users will finally be forced to switch to aluminium from steel. They had no incentive to do so as long as steel prices remain cheap.. I never buy the argument that aluminium is too energy intensive to produce because it requires far less energy to recyle than steel in the long run. Alumnium makes everything lighter.. We dont make jets with steel at all. So take a clue!! We already started to make a few all aluminium cars but they are luxurious. Later on, all cars will be made of aluminium like we already with bicycles... Even we should make all aluminium rickshaws for the Third World population.. Steel is an inferior metal as compared to aluminium.. Those industrial users are too lazy or cheap to retool their plants to switch to aluminium.. Simple as that... Aluminiu is supposed to be worth $3 or more a pound by now...ReplyReport AbuseGas Guzzlers #4Sunday, April 04, 2010 12:33:08 PMSteel users had been relying on alloying agents to make steel lighter and strong.. Know what? Those alloy agents is expensive now... Steel producers is doomed! Aluminium will rise from the ashes... Aluminium will be the metal of the centruy if not the millenium... Aluminium (bauxite) is the most abundant resource on Earth topping iron by many times.. We can use solar energy, wind power or hydro electicity to convert bauxite into aluminium almost limitlessly. We are too lazy to do that... We chase profits to the maximum at great expenses to the enviroment... Aluminium will solve global climate issues... We are too ignorant to undestand how aluminium can benefit us all.. Just too way ignorant, that is...ReplyReport AbuseGas Guzzlers #5Sunday, April 04, 2010 12:36:24 PMSteelworkers unions know that steel has no future... They unionized aluminium companies...ReplyReport Abusexiangtuzhijia #6Monday, April 05, 2010 1:24:35 AMComparison of Airline Flight Tickets Can Help You Book Cheap Flights Buy Discount Airline Tickets - Things To know(Flight Ticket)=$1 (Hotel Room)=$1 (Car Rental)=$1 ===>Get all from $1 onlyCheap hotels at virtually every destination worldwide75% Off Hotels---Compare All Hotel Booking Sites, Pay the Lowest Prices for HotelsDiscounted car rental in 1300 citiesSave between 15-30% by choosing an Independent Car Rental Agency for cheap car rentalsReplyReport Abuse1 - 6 of 6PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/inflation-warning-etched-in-steel.aspx?','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*