Inflation & Hedging

Everyone is worried about inflation (except for those who believe inflation isn't measured by consumer price levels). And for good reason. But I think its a consensus view that the bleed into core consumer price levels is taking longer than anticipated. One reason for this might be that corporations, especially industrials, heavily hedge their energy purchases (much moreso than in the past). The upshot of this for consumers is that price levels have remained relatively tame (or at least not so volatile) in an environment of surging energy costs since the cost to production has trailed, significantly, the market price.

But we don't care about the major trend. No one makes money there. Where you make money is predicting what will happen next. And the old adage, what goes up must come down, rings a bell does it not?

When (not if, but when) oil prices come back down, the corporations who so wisely hedged their gas and other energy purchases are likely to be losing money... big time. Like any hedge, at some point you have to go back to the open market when your hedged the wrong way. In my opinion, there are a lot of companies out there right now who should be switching over from mainly hedged to mainly open market. If they don't, they could make a lot of vultures rich.