Will Wall Street attempt to mask Stagflation?
"The newest spin is to label any negative economic event as a “Rear View Mirror Event.” As a result, the disappointing GDP number, which was expected to be 4% but came in at 1.1%, was instantly dissmissed, with the talking heads immediately asserting that blue skies were on the horizon.
The street talk was that this poor performance was related to hurricane Katrina and was therefore irrelevant. You'd think the spinners would be more creative and come up with a new excuse because this one has been flogged to death in recent months.
Looking at the numbers reveals that the poor performance of the GDP report is from sick auto sales, declining exports and less military spending. Do you really expect better auto sales after the give away deals sapped up auto demand?
The US Trade balance shows no REAL improvement so you can write that off too. More war is certainly possible as Iran thumbs its nose at the US and EU. Increasingly, Iran is being seen as a rogue nation and global support for military action is growing.
So how can you spin hurricane Katrina in terms of the disappointing GDP number? Yet the equity market forges ahead confounding the bears who fail to understand the power of the black box in a world that is swimming in liquidity. It is not what is being injected today but was has been injected by Professor Bernanke in the past that has no practical ability to be drained.
Today, two new governors were appointed to the Federal Reserve. Both are out of the White house staff. Now do you really believe that Professor Bernanke is going to be the great inflation fighter, having been in the employ of the White house prior to his appointment? Assuming that the GDP will not make any significant improvement from its present level, you can be sure interest rate hikes will stop and in time the Fed will move to more non-traditional methods of pumping the hell out of liquidity so that history does not write this administration out of the texbooks."