She obviously has more intellectual capital than I do. Maybe that's why I can't seem to get my arms around using "contained inflation" as part of any analysis that looks back over decades.

If you view inflation as money supply, I think it's pretty obvious that we are in a high inflation environment.

If you view inflation through CPI figures, well... We all know that the CPI calculation has been manipulated to show lower inflation than the calculation showed in the 1980's and earlier. Here is a link that shows that if today's CPI was calculated as it was in the pre-Clinton era, that today's CPI would be close to 6.5% - a full 3% points higher than reported.

http://www.gillespieresearch.com/cgi-bin/bgn/

So, I guess I need some help here. Maybe I'm wrong, but for the last 3+ years, my investment thesis has been that inflation is NOT contained so my diversified portfolio has been focused on commodity based companies and gold. It is not too hard to see that the returns on these asset classes have far exceeded the returns of the S&P, Dow etc. and that investors in these areas are doing very well.

I always say; your p&l is the final arbiter. Until she can show me that the p&l of an "inflation contained" strategy is better than mine, I'll save what little intellectual capital I have and stick with the "inflation not contained" approach.

Bill, could we get Faber and Garzarelli in the same room together? If I'm reading his market comments correctly, the description "poles apart" doesn't begin to describe their respective viewpoints.

I can only concur with g034. I'm confused as well. There's a 'weedenco' interview with John Williams floating around the internet that raises the same points (if I'm not mistaken, he claims that CPI should actually be around 8%).

I'm not a trained economist, but at the risk of lumping in stock markets with macro-economics, it seems as if Garzarelli is ignoring a rather large elephant in the room: the deflating housing bubble in the US. If the world's largest economic block (the US consumer makes up 20% of the world's economy, according to David Rosenberg of Merrill Lynch) is beginning to feel the pain, won't this have an impact on the US stock markets? If not, that would seem to require a detachment of the DOW and S&P from the broader economy of truly epic proportions.

Again, just some thoughts and doubts expressed by a non-economist.

Comments appreciated.

I cannot resist taking a shot at Elaine. I should, if only so as not to paint myself as dumb, but I cannot.

Bill, you are quite clear that you teach people to think, rather than do their thinking. I appreciate that. Back when, as a Little Person, I devoted less time to the market than now, I subscribed to Elaine's newsletter, impressed that she called the 87 top. Much less pricey than now, I recall it just over $300. This would have been around the mid-nineties. I don't remember exactly.

Her indicators began to say sell. I did. Next month the market had not plummeted. Nor the month after. Elaine counseled patience. Her indicators didn't lie, and folks could ignore them at their own peril. I was glad to have her on my side, and foresaw that soon Elaine and I would remain solvent, while everyone else would be wearing barrels. But the market kept rising. I don't recall just how long she advised patience….doubtless it seems longer than it actually was.

Suddenly Elaine reversed herself. She had tweaked her indicators! She had neglected the importance of this or that. Now, she opined, the market was going to the moon….which it did. At that time, she stopped signing off with “ciao,� in favor of something more modest. Perhaps she is back to “ciao.� She certainly managed to up her price three-fold. Fed up, however, I let that year's subscription expire. I had missed a very large market rise.

As I said, this makes me look dumb, not her. Anyone can be wrong. She caught herself and publicly readjusted. She appears to have, not merely salvaged, but enhanced her image, and I have no doubt she deserves a place on your list….she is very clever and immerses herself in the economic nitty-gritty. I wish her well….not, of course, that she needs my wishes. It is her uber-marketing of her own infallibility that steamed me, as well as my own naiveté. But it was a learning experience for me….which will likely prove most valuable. Read what these folks have to say, and mull it over. But do your own thinking.

Bill, I am right across the lake from you in Rochester. Should the internet fail, I will use one of geese you photograph to deliver messages. However, all bets are off should you move to Cayman. They are, after all, Canadian Geese, and are not likely to emigrate.

My views on this matter have been made known before.

If people make mistakes, that happens all the time, even by experts. We're human! They should just say they were wrong, then explain why. If they "cover their tracks", I have no patience for them. People who glamorize, overstate, obfuscate, prevariacate, etc all in the name of ego have no place in my world.

Elaine has ties going back a ways with Kudlow- another 'objective' resource!

I most remember her being 'relieved' of responsibilities of running money at my former employer, although I can't find much about that. It was mentioned in this uncomplimentary article on the Garz-

"Other factors almost certainly played a role, too. In August of 1994, Smith Barney Shearson had closed the Sector Analysis Fund that had been run by Garzarelli. The fund had turned in truly depressing results since its inception in August of 1987, producing a cumulative return of 37.7%, only half as good as the 73.6% return of the S&P 500 over the same period."

http://www.fool.com/rogue/1996/rogue960802.htm

Zounds! Funny you should mention CWCO, Bill. I trade in that one. It topped recently, and for once, I did not screw up. Sold it there, whereupon it sunk 8%. I couldn't really see why....no hurricanes in the area....so I figured you and your buddy Jeff were out late for pina colladas and the market panicked when Jeff showed up late at the office next day. Bought a little more, it recovered, I sold, and now it is at a new low. Unusual success. Normally, my deals like this end up right down there with all my Enron shares :)

I love the blog, Bill. Thanks

Thanks a lot, Stockman, for your Garzarelli link. :( Oh, all right. :) All my nightmares returned

carriertom-

The education process in this business is painful, no? I have been well educated as well, bought and PAID for! Another note I have pasted to my office wall:

"NO ONE KNOWS WHAT THE MARKETS WILL DO, GATHER THE INFORMATION AND FORM YOUR OWN OPINION, IT'S YOUR $$$$- THINK!!!"

Hopefully we learn from the education we have paid for, some never do.

g034-

I think it appropos to post that Jesse Livermore quote once again about "sitting tight". Please direct me/all to that link.

http://www.billcara.com/archives/2005/12/gold_futures_ar.html