Inflation genie...

.... we shouldn't let it out of the bottle.

Nouriel Roubini speaks and as you'd expect, the news isn't good (well, he's called Dr. Doom for a reason)
.

I see Roubini covered a lot in the Canadian press. I think his general crappy outlook on the world suits the alienated Canadian perspective.

He's the "ghost of unregulated banks present" and I think Canadian like him because he's walking justification for the regulated bank past that Canada has been through.

Missed the last rally...?

...Don't worry, it probably won't last.

The market has been a lousy predictor. People used to say that the stock market predicted 12 out of the last nine recessions. This time, it predicted six out of the last zero economic recoveries. Every time there was a rally, and then the macro[economic] news, the earning news, the financial news was worse, and the market touched a new low.

reportonbusiness.com: A big bear: Markets 'way too optimistic'

The recession's Churchillian moment?

To quote Churchill

"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."

Or, in econospeak:

"I don't think that this is the beginning of a recovery. It's the beginning of a much slower pace of decline," said Ethan Harris, an economist with Barclays in New York. "You've got to walk before you run."

U.S. economy shows signs of crawling out of hole | Reuters

Forget growth, forget inflation. The main concern...???

...plain old stability!

I remember the days of "don't worry, it'll be a mild recession" talk of a few months back. Now we're looking down the wrong end of a full on financial crisis.

I'm glad some people still have a "don't worry be happy now is the time to buy attitude" but I remain unconvinced. I thought that a few weeks ago and now feel duly chastened.

I'm not panicking or doing anything rash.

But I'm not happy either.

FT.com / Markets / Insight - Insight: Life won’t be easy in the ‘nasty decade’

And I was having such a good day....

FT.com / Markets / Insight - Insight: Life won’t be easy in the ‘nasty decade’

Buffett says recession may be worse than feared - Yahoo! News

Just when you thought it was safe to poke your head out again.....

Buffett says recession may be worse than feared - Yahoo! News

For the Fed, a Recession -- Not Inflation -- Poses Greater Threat - WSJ.com

Can't think of any commentary at the moment... but take a minute to go through this, it is a good read.

U.S. Import Prices Soar, Boosted by Chinese Goods - WSJ.com

Increasing global demand pushes prices up, and a dropping US dollar makes more expensive goods seems even more expensive.

This shouldn't surprise anyone

U.S. Import Prices Soar, Boosted by Chinese Goods - WSJ.com

Update: More on China and inflation.

Recession to be longer than usual: UMich | U.S. | Reuters

Recession to be longer than usual: UMich | U.S. | Reuters

Here's a quote:
Paradoxically, worsening economic conditions will induce families to save money, reinforcing the drag on an economy that has become largely reliant on consumer spending.

True, but increasing US savings would also reduce the trade deficit and would also help shore up the dollar. Increased savings may also do more to boost lending than the current reduction in the interest rates. Increased savings would keep more money in the US system and mitigate the necessity for aggressive monetary policy.

I'm also guessing that consumers with more savings in their accounts would also be a lower credit risk, making them more attractive to banks.

And finally, increased (and sustained) savings in the US means there won't be a generation of pensioners in about 20-40 year without enough money to live off of.

I'm not begging to a long and deep recession, but if it hurts enough to in some ways impact the mentality of the current generation and encourage them to save more, borrow less and spend within their means, then the current period of pain will be worth it in the long term.

And oh yeah… what would a post be without my obligatory warning on inflation (which increased savings would also help mitigate.)

Inflation pressures will linger despite the retrenchment in consumer spending, complicating the task of policy-makers, the University's Richard Curtin said in a report, citing data from industry group The Conference Board.

The Harvey Dent economy

The economy.... is turning into the deadly Two-Face. Impeding recession pushes interest rates down, but looming inflation would push them up.

The money quote:
He said he expects core inflation, which strips out volatile food and energy costs, to remain above 2 percent, "which is above the range I consider to be consistent with price stability."

Lacker also said it was worrisome to see inflation at current levels. The overall consumer price index rose 4.1 percent in the 12 months to December, while the core rate, which excludes energy and food, climbed 2.4 percent.

"We can't cut interest rates as aggressively in response to weakness in growth as we otherwise would," Lacker said. "We're going to be posed with some problems this year if inflation doesn't moderate the way we'd like to see it moderate."

Succumbing to unnatural forces

From the Big Picture.

Here's the money quote:

Consider how many of our current problems are due to ill-considered poorly thought attempts to avoid a cyclical recession. Not only is our mess man-made, but it was totally unnecessary.

A recession... or something like it.

look, I'm not going to say the economy is not in trouble... it is and it may get worse before it gets any better.

Hell, it may get much better, and then get much worse all over again for an entirely different reason.

But I cannot help but think the current economic hit we're taking is smacking the financial sector particulalry hard and their whining is getting the rest of us down. So the farther you get from financials, the less of a whack you may be getting.

Factories Remain Solid as Orders Increase - WSJ.com

Let's talk about inflation, baby

FINALLY... amongst all of the talk about interest rates and recession, someone bring up the problem of inflation.

I've been yabbering on about inflation for a while but it seemed no one was paying attention to me... I was starting to take it personally.

Greg Mankiw weighs in with:

A rise in expected inflation is not consistent with the conventional wisdom that the economy is on the verge of a serious slump driven by inadequate aggregate demand.

My thoughts (sorta) on that here and here.

In a nutshell, recession talk in the US may be fueled by low domestic demand, but high global demand for products will keep pushing prices up at the exact same time the US dollar (read, American’s ability to buy stuff) drops.

The Fear Is Palpable. Time To Buy. - Seeking Alpha

Sage advice...In a nutshell... don't worry, be happy.

In a little less flippant way, unless you feel there is something fundamentally wrong with your current portfolio or the capital markets in general, the average investor shouldn't make moves to try to avoid or out-think the market.

So Much for the Decoupling . . . .

wait... that is what I just said.

The Big Picture | So Much for the Decoupling . . . .

The bears are having their day it seems, but I would be suspicious of too much kodiak chest-thumping. If you claim anything long enough (like the economy is about to tank) it is bound to come true sooner or later.

World stocks routed on fears for economy - Yahoo! News

"Risk aversion is widespread as the market thinks (the economic downturn) is not just a U.S. centric story," said Paul Robson, currency strategist at RBS Global Banking.


oh well... so much for the oft told theory of the "decoupling" of the world economy and the US economy.



World stocks routed on fears for economy - Yahoo! News

Time to re-enter the market?

Two views from Big Picture.... maybe yes.... or... maybe maybe...

Bernanke Backs Calls for Quick Action

Federal Reserve Chairman Ben Bernanke threw his support behind quick and temporary tax breaks, combined with the possibility of "substantive" rate cuts, in testimony before Congress.

Isn't that the formula that got us into this mess to begin with? If previous growth wasn't sustainable, with this new "stimulus package" aren't we just starting down a new path of unsustainable growth?


Bernanke Backs Calls for Quick Action

American recession, global inflation?

I heard from an economist the other day that the world may be heading towards both a US and China slow-down. The US slow-down (recession) he argued will be relatively mild and not have a great impact outside the US. A China slow-down would hurt emerging countries (because China buys all of their commodities) but will have little impact on the West.

But what about a US recession and continuing strength in China? Economic growth slows domestically and the dollar drops, but global prices remain high and even climb?

The US faces recession from within, and inflation from without. That could greatly exacerbate what may otherwise be a mild US slow-down.

The economy | A delicate condition | Economist.com

Inflation vs. Recession

What scares you more, inflation or recession?

Me....I'm more afraid of inflation so I say "boo" to agressive rate cuts.

Fed's Inflation Fears Might Trump Calls for Another Big Rate Cut - WSJ.com