Thoughts From The Frontline

Housing starts rose 9% and the market cheerleaders proclaimed that we have seen a bottom. But not if you look at the actual numbers. New unemployment claims were OK, but not if you look at the actual numbers. And inflation was simply ugly, no matter what numbers you look at. However, oil is down and there is reason to think it may have further to go on the downside. We cover all this and more, as we first look at why the world is not going to end....

It was only five years ago that the central bankers of the world, and especially the Fed, was worried about deflation. Ben Bernanke was introduced to the world at large with his famous helicopter speech about how the Fed could deal with a deflationary environment. Who would have thought that what passed as humor to a group of economists would be taken so seriously by the rest of the world? Today the worry on the mind of investors and central bankers is inflation. It is causing havoc with the markets. In this week's letter, we look at whether we should be worried about inflation, take a mid-year check on the economy, muse on the malaise in the stock market and offer a very contrarian possibility for a positive shock to the world. It should make for a thought-provoking letter....

President Nixon instated price controls on the 15th of August, 1971. Inflation was a little over 4% at the time. Price controls manifestly did not work (resulting in shortages of all sorts and a deep recession) and were rescinded a few years later. President Ford went to Congress with programs to fight inflation that was running closer to 10% in October of 1974, with a speech entitled "Whip Inflation Now" (WIN). He famously urged Americans to wear "WIN" buttons. That policy too was less than effective, and the buttons, in a history replete with silly gestures by governments, should stand on anyone's top ten list of such silly gestures. This week we look at the cost of what could be a renewed effort to Whip Inflation Now, not just here but in countries worldwide. Will Trichet in Europe raise rates even as the European economy seems to be slowing down? If you think inflation is bad in the US and Europe, take a peek at Asia. And I ask, "What will Ben do?" It should make for an interesting letter....

Last week I wrote that we could see a drop in the price of oil as speculators seemed to be storing oil in very large tankers and "slow steaming" them to port in a bet that prices would rise. When everyone is on the same side of the trade, the time is right for a reversal. This is especially true when there is a large potential supply sitting on the sidelines....

Retail Sales Take a Dive Accounting for Inflation The Fed at the Crossroads Sell in May and Go Away South Africa, Flowers, and On the Road Is the economy poised for a recovery, as the stock market seems to expect? Or are we in for another few more quarters...

If we are to believe the government statistics, the GDP of the US grew by 0.6% in the first quarter of this year. And unemployment actually fell. And there were only 20,000 job losses. This week we do a quick review of why the statistics can be so misleading. We also look at why I was wrong about the housing number last week, and I highlight what could be a very serious Black Swan lurking in the agricultural bushes....

A few weeks ago I asked for readers to send me questions and said I would try and answer them while I was in Switzerland. Some of them were quite good and have given me ideas for whole newsletters but will require a lot of research. But a lot of them fell into two basic camps. This week we look at a number of questions from readers about my thoughts on the Muddle Through Economy....

There is so much that is happening each and every day as the Continuing Crisis moves slowly into month 8, so much news to follow, so many details that need to be followed up that it can get a little overwhelming. Where to begin? Maybe with a "minor" change of the rules on how we value assets, then a look at the proposed changes in regulations...