Milk as Inflationary Gauge

If anyone has any doubts that inflation IS real, then one needs to consider the price action of milk.

Milk? Yes, milk. I know this news might be old for some, but I don't know if anyone seriously considered the implications of milk.

Around the globe, cow milk is a core ingredient in many of the food substances both natural and processed. Milk is in just about everything from chocolate, baby formulas, to cakes. When you consider the ubiquitous nature of milk and the implications it has on world food consumption, which should rise as population continues to grow logarithmically with no end in sight, you can consider that the price of milk, long an after thought, actually has serious implications on inflation.

On May 30, 2007, it was announced that the price of milk is expected to rise 9% based on rising fuel costs and increased feed cost. http://msnbc.msn.com/id/17869458/ This is a rise of over 30 cents per gallon by fall.

Heed this as the warning that should have even the sunny perma bulls of this market shaking in their pants. It has trickled down to the basic food group. The whole sale take home message is that milk's rise in price has to do with inflationary pressure that is currently the major issue with the FEDS. It also is an indication that other aspects of the economy is experiencing significant inflationary pressure. Oil, rising health care cost, wages that are not keeping up with inflation, and global demand for raw materials all contribute to the inflationary problems that are not an isolated event exclusive to USA.

Rising milk price is by far the most confirmatory signal that inflation is worse than even the FEDS who stated that inflation is not contained recently, and thus should be taken seriously.

I do not think that the market is healthy despite the recent market movements. Remember, the current rally comes on suspicious follow through day on the Nasdaq and that the rally lacks significant volume. If anything, this action is reminiscent of the 2000 tech rally that eventually pittered out. Thus, for those of you who are thinking of giving up and joining the "long" camp, consider the LOUD WARNING being issued by of all things, MILK.