I am afraid we will see an inflation tsunami hit our shores. The Fed seems to be on a wait-and-see approach: No matter what the horizon out at sea looks, they want to see the water level in the cities rise before they do anything. That seems to be the prevalent view of the ‘doves’, helicopter Ben being one of them. This crowd seems reluctant to believe inflation is a serious threat while there is so much slack in capacity and so many unemployed. But the inflation tsunami will come mainly from abroad with the dollar so weak as it is. The CEO of Wal-Mart U.S., Bill Simon, warned in a meeting with the USA Today last week that inflation is “going to be serious”. “We’re seeing cost increases starting to come through at a pretty rapid rate”, he said. Wal-Mart knows a thing or two about retail prices. In another example, LG told retailers in February that it will increase wholesale prices of its home appliances in the U.S. 8%-10%. And the price of WTI crude is $108 a barrel despite a weak economy. My feeling is that one of these days the core inflation read will be way above expectations, and that would certainly spook markets because it will become obvious that interest rates will have to move up sooner and faster than expectations. We may see a stock market correction, a commodities correction and a ‘bet against the dollar’ correction. But I would not shed my metals, Swiss Francs and Australian dollars. If interest rates move up, and up fast to contain inflation, borrowing costs for the federal government may go through the roof. And what really worries me more about inflation is not what is going on at the Fed, despite all the doves and Keynesians there, but rather what is going on at the U.S. Treasury. The spending situation there, as we speak, is out of control. Nobody really knows what could trigger a Greek crisis of global proportions, but we are now headed that way. The U.S. Congress right now cannot even agree to cut the 2010 budget (half way through) by 2%. So if the dollar rebounds I will use the opportunity to decrease my USD cash holdings.