He says investors are reacting with deer-in-the-headlights paralysis, due in part to the ingrained psychology left over from the previous boom.

'Investors have failed to cross over and adjust the asset allocation of their portfolios,' he says, referring to both retail and institutional players. 'They haven't connected the pieces of the inflationary puzzle together.'

Mr Puplava says energy companies and other resource plays remain grossly undervalued despite the attention garnered by soaring crude oil prices. Major US oil producers trade at an undemanding price/earnings multiple ranging between 10 to 16. By comparison Microsoft is trading at 23 times earnings, while internet hardware provider Cisco Systems is priced at 31.5 times earnings.

Consumer-price data reveals relatively benign inflation. But Mr Puplava dismisses the official figures, saying American families are encountering rising prices every day in goods and services ranging from gasoline to college tuition.

'Inflation is all around in the form of asset bubbles in stocks, bonds, mortgages, real estate and in rising commodity prices, especially energy,' he says.

Oil prices, now up about 40 per cent in the last year, along with rising gold, silver and industrial metals, are all early warning signs of the unfolding inflationary environment.

On the horizon there appears to be little relief, as fast growth in China and India fuel new energy demand.

Mr Puplava believes the Federal Reserve's reflation policies will continue to be mirrored by central banks around the world. The error most market watchers make, he says, is assuming the Fed is about to embark on a fast rate-increase cycle in the face of rising consumer and energy prices. If history is any guide, interest-rate increases should be more gradual than most people expect.

'There hasn't been a single year in which the money supply [of the US] has contracted in the last century,' he says.

Mr Puplava says the Fed's low interest-rate policies, initially designed to restart the US economy following the stock-market bubble, have fostered a system where credit is created by institutions beyond the control of the US central bank. To slow the system down would require Fed fund rates well above 2 per cent.

'The only problem with that kind of policy response is that the economy and the financial markets are far more geared than when Paul Volcker applied the brakes to credit and money in the late 70s and early 80s,' he says. 'The financial markets could not handle the stress on account of leverage.'

So far this year M3, the broadest measure of the US money supply, has increased by US$349 billion, an annualised rate of 10.2 per cent. At this pace, more than US$1 trillion will be added to the number of dollars in circulation.

Surging US dollar liquidity may be responsible for ending Hong Kong's long bout of deflation, which formally came to a halt in the third quarter last year. Local consumer prices appear on track for a gain of 1.4 per cent this year, according to Hong Kong Monetary Authority chief Joseph Yam Chi-kwong. 'If prices remain stable in the coming months, the year-on-year percentage change of the CCPI [Composite Consumer Price Index] will likely be positive by July this year,' he says.

Mr Puplava believes in coming months the Fed has no intention of embracing anything but the most cosmetic forms of tightening, given that its real goal is to deliberately engineer inflation to avert a deflationary debtor's crisis.

All in all, he says, that adds up to a bullish outlook for commodity-rich country bonds, energy, food, base metals and precious metals.