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Monday, February 26, 2024

Wary Wednesday – Groundhog Was Wrong but Fisher Sees Inflation

We are having yet another snow storm in New Jersey.

So much for trusting small rodents to forecast the weather but at least one of the rats at the Fed is finally seeing the shadow of inflation as Dallas Bank President, Richard Fisher said every single one of the 50 business executives he speaks with on a regular basis is looking to raise prices to consumers.  

"That concerns me," says one of our nation's top monetary strategists.  The regional bank chief said he personally surveys about 50 businesses, more than most of his colleagues at the Fed, and that the position on prices is “without exception, in every sector in every size, whether they’re public or private.”  

While I guess we should applaud Fisher for being the first Fed Governor to recognize inflation in our economy – I suppose I should also point out to the Fed that there is a preponderance of evidence that indicates, at this point, that the Earth is not flat – just to help them get caught up with the rest of us.  Still Fisher is somewhat of a prodigy among the slim pickings we have when selecting from Fed brains:

Barring some extraordinary circumstances I cannot foresee, I would vote against the QE3 or even a tapering of the current program. I don't think it's necessary, It's now up to the fiscal authorities to provide the right incentives for businesses to hire more American people, Our job is done. Now the pressure and the job is in the hands of our elected representatives who have the only power to tax and to spend.

TAX and spend?!?  Oh no he didn't!  That's Liberal Commie talk if ever I heard it and, if the Fed is going to base their own policy on the assumption that this Government will either tax OR spend – then we are already doomed because the Keynesians left the building last November and are unlikely to be invited back in until we have our own nuclear melt-down to throw money at (or if the banks need money, of course).  

Speaking of melt-downs, the iodine in the Tokyo water supply has been deemed "unsafe for infants."   While not certain, officials said they suspect that the airborne iodine had drifted over rivers that feed Tokyo's water system and had come down in recent rainfall.  We anticipated this last week and went long on mega-water bottler KO, although some of the smaller importers should do very well for the next quarter too! 

The U.S. became the first, but certainly not the last country to ban food from Japan, blocking the import of milk, vegetables, and fruit from regions nearest the Fukushima plant.   South Korea may be next to ban Japanese food after the world's worst atomic crisis since Chernobyl in 1986. France this week asked the European Commission to look into harmonizing controls on radioactivity in imports from Japan. Food made up just 0.6 percent of Japan's total exports last year but this just adds to the now $250Bn damages tab from this little nuclear "mishap."  

Don't worry about TEPCO though, they will be fine as Japan’s taxpayer, not the nuclear industry, will cover most of the cleanup cost from the worst accident since Chernobyl.  Tokyo Electric Power Co. is, at most, required to cover third-party damages of 120 billion yen ($2.1 billion) under Japanese law.  

Should the government declare the magnitude-9 earthquake and tsunami that flooded its reactors an “exceptional” act of God (as opposed to God's usual stuff, I suppose), the utility may be off the hook in paying compensation that may be demanded by injured workers, farmers and shareholders.  Isn't that special?  

The Japanese government may pay as much as 1 trillion yen to compensate businesses and individuals for damages from the nuclear accident, or eight times the maximum cost for Tokyo Electric, the Tokyo Shimbun reported on March 12, without saying where it got the information.

The Nikkei sold off 1.65% this morning on a very nice call by ZZ in yesterday's chat to short Japan as they were not adequately accounting for the long-term damages.  Perhaps neither are we as the U.S. auto industry likely will face sporadic production shutdowns for several months because of shortages of microchips and other parts that had already been scarce prior to Japan's earthquake and tsunami, analysts say. The shutdowns and shortages may not affect overall production volumes, but could hurt profit margins for the automakers and suppliers. 

Also disturbing: Of 111 housing experts and economists surveyed by Robert Shiller, nearly half foresee a double-dip in home prices this year, "and not a single panelist expects national home prices to recover to the pre-bubble trend in the coming five years." The report comes as Fannie Mae (FNMA.OB) says rising gas prices will directly dampen any housing recovery.  Don't buy the hype, Gary Shiller says – "stocks are anything but safe." The stock market is rising because Fed policy is making it rise, but the economic recovery is much less than meets the eye, Shiller says, expecting another 20% drop in housing.  Needless to say, money is pouring back into bonds.

 

Meanwhile, Performing its own stress test, S&P finds EU banks would need to raise $355B and governments would have to increase borrowing by 20% in a "severe economic downturn." Yet, somehow, the S&P does not anticipate the region having difficulty pulling through such a crisis.  The BOE today voted to keep rates steady and that finally boosted the Dollar but we're still not back over 76 so don't get excited.  Meanwhile, Japan will need to borrow about $550Bn this year to cover quake costs along with their normal deficit spending yet somehow TBT is back at $36 – as if the World is somehow awash in FREE MONEY (see last night's Member Chat for detailed conversations on this as well as hedging strategies).  

Poor Portugal is not on the right line for the Free Money as their borrowing rates test the 10% mark (and they are about to overthrow their own Government this week) but it's Ireland in the winners circle as the first EU nation to get whacked for 10% on their 10-year notes since the Euro was founded in 1999.   

So plenty of things to worry about on a Wednesday – we went into the close still bearish, as there is probably a whole centipede's worth of shoes left to drop!  

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