The Fed is flooding the system with as much funny money as it can. US monetary base has shot up by over 100% this year. It’s the largest increase in 50 years by a factor of 10. This build up of freshly printed dollars threatens a dangerous inflation… but not yet.

As Notes faithful will know, we pinned our colors to the inflation mast some time ago. It is a clear-and-present danger. Especially considering that the feds have no way of paying off their massive debts without triggering an inflationary episode.

But underground investor Tom Dyson says when it comes to the prices of goods and services now, deflation is the name of the game.

Timing is everything in the investment world, of course. And knowing that inflation is on its way is no good to anybody unless they have a reasonable chance of knowing when the tide will turn. And considering Notes

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While the mainstream media has been focused on the run-up in equities, one overlooked sector has turned “red hot,” according to Justice Litle in Taipan Daily. Justice is talking about the grain markets – foodstuffs like corn, wheat, soy and sugar.

This chart shows the price movements since the beginning of the year of the Powershares DB Agriculture Fund (NYSE:DBA). It represents a basket of futures contracts for commodities such as wheat, corn, soybeans and sugar. As Justice says, “Commodity after commodity has roared back to life, thanks to a combination of renewed inflation expectations, a crashing U.S. dollar, and newly bullish fundamentals.”

Last Thursday, we discussed at length the effects that inflationary expectations are having on the market. We said that Treasuries were a bad

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The Treasury is having a tough time hawking US debt these days.  This from today’s Financial Times: The 30-year Treasury yield rose to 4.30 per cent on Thursday from 4.10 per cent the day before after bids at the government auction came at lower prices than expected.

The 30-year Treasury is now at its highest level since last November. The rise in bond yields has raised questions about whether the Federal Reserve will step up efforts – which began in March – to keep yields down through direct purchases of government bonds.

Tom Porcelli, economist for RBC Capital Markets, described it as a “terrible auction.”

Why is this bad news? Because such poor demand in the face of America’s requirement for record amounts of public debt will make it very difficult for the Fed to keep interest rates low.

You see, politicians pretend that there are few adverse consequences to their worsening debt

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By Tom Dyson People always ask me what I think of the financial crisis. They know I'm an investment analyst, and they expect me to moan about the deep recession we've gotten ourselves into... "This is the best thing that could ever have happened to us," I tell them. It's as if someone just flicked on the "turbo" switch for income investors. Every dollar you invest is now bringing in two, three, even four times as much income as it did a year ago. As I covered last week, yields on the MLP sector are high. You can earn safe double-digit income in assets like Annaly. Best of all, options premiums are high, so you can turn world-class blue-chip stocks into 15% income yielders right now. I write an advisory called The 12% Letter. It's dedicated to finding the best income opportunities in the ...

Notes from the Investment Underground April 9, 2009 Palermo Viejo, Buenos Aires, Argentina

Why you should invest in pipeline companies… Wither Geither’s stress test results? Congress vs the Treasury… Check out of USA Inc with these four BRIC EFTs… How to survive the “Great Money Famine of 2009”… Three questions for Barney Frank… Congressional panel: Liquidate banks, fire top execs… PPIP FLOP… Geithner’s latest Orwellian manoeuvre… And more!

*** We’ve added a new section to Notes. It’s called “Must Reads” and it’s basically a list of the day’s must read articles on money-making and the markets. It’s at the very bottom of the issue. Tell us what you think: info@contrarianprofits.com. Don’t be shy. We’ve got thick skins.

*** We love DailyWealth. It’s quite possibly the single best free source of contrarian money-making ideas out there (apart from Notes, of course).

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Notes from the Investment Underground San Telmo, Buenos Aires, Argentina

April 6, 2009

Why the economy is still heading for a cliff… All the king’s horses and all the king’s men can’t put the banks back together again… The madness of Sheila Bair… The government lies over banks are paper thin… Infighting at the Treasury… Why Citi’s CEO should go… Banks plunge… “Fake dividend” strategy exposed… Can mark-to-model save them? Selling OTM calls against your financial stocks… What happened on March 9… And more!

*** You’re reading this newsletter because you don’t believe the cheerleaders in Washington and in the mainstream press. You know it’s safer to know the truth about the economy than to believe the hype and the lies and the false optimism. You know that real money-making ideas can’t be found on CNN and

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In the 1980s, there was a group of traders called the Bond Market Vigilantes. These traders were like the guardians of the free market economy. They kept the government in check by driving up interest rates every time it tried to increase its finances or induce inflation.

Richard Russell, the dean of the newsletter world, calls them “bloodhounds.”

Whenever the Bond Market Vigilantes sensed inflation, they sold their bonds. As prices on bonds fall, their interest rates rise. Higher interest rates made it more expensive for the government to borrow. They made it harder for people to buy houses. They hurt the economy. In short, the Bond Market Vigilantes prevented the government from engaging in reckless borrowing and spending by always threatening higher interest rates.

Today, the Bond Market Vigilantes are too weak to make a …

Today I’m going to give you the most important investment advice you’ll ever receive.

You should never invest again without doing this. This technique is something Warren Buffett knows, Sam Zell knows, Bill Gates knows, and Peter Lynch knows. It works for bonds, currencies, stocks, real estate, and the money in your bank account.

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BBy Tom Dyson/BBRBR In yesterday's column, I explained why government intervention is turning America's economy into a "vegetable economy."BRBR The theory is, government bureaucrats are the worst allocators of capital in the world. Now that they control America's financial and real estate markets, the economy will stagnate. On the other hand, as long as the government continues shoveling out cash, there will be no more credit crunches, liquidity crises, or bank failures.BRBR In today's essay, I'm going to show you why corporate bonds are the best investments you can own in this environment...BRBR A bond is a loan. The borrower takes the money and promises to pay it back on a certain date and deliver a scheduled interest payment for the duration of the loan. This is the best outcome a bondholder can expect. In the worst outcome, the bondholder receives no interest and doesn't get the money back.BRBR In other words, bondholders don't care ...

BBy Tom Dyson/BBRBR Traders called it the "Greenspan Put."BRBR During the 1980s and 1990s, the Federal Reserve adopted an unofficial "bailout" policy. Whenever a crisis occurred, Fed Chairman Alan Greenspan would cut interest rates and inject billions of dollars of extra credit into the system. This "re-juiced" the markets, making them rise again.BRBR Traders buy put options to protect themselves from catastrophe. Put options are like insurance. With the Greenspan Put in place, traders felt comfortable speculating. They knew the Fed would bail them out if needed. They had insurance.BRBR Bernanke replaced Greenspan in 2006. The market assumed the Greenspan Put would live on. And the government validated this assumption by saving Bear Stearns last March. Following the bailout, the S and P rose from 1,250 to 1,400. The volatility index dropped from 35 to 20. Junk-bond spreads declined from 8% to 6%. We thought the credit crunch was behind us.BRBR Then, Lehman Brothers collapsed.BRBR Lehman ...