Kool Aid Bulls Twist Inflation into being a "Good Thing"

I almost have to laugh at some of the absolute snake oil salesmanship on Wall Street - the more I see this over many years, these are essentially used car salesmen with MBAs (no offense to you hard working used car salesman who may read the blog).

After ignoring inflation for quarters on end, these salesmen ... err.. analysts and pundits... have now embraced inflation. Why? The sales job being put out there since last week's CPI is that inflation, both in the here (through data) and an increase in future expectations of inflation (through TIPS, through 10 year bond rates stubbornly going higher) is a GREAT thing. Why is it great? Because there is no way that inflation would be going up, if the economy was going to be weak in the 2nd half.

That's what is being sold and why inflation, which has been feared for a long time, is now EMBRACED.

Folks, I am in my mid 30s... most of these snake oil salesman are 10, 20, or 30 years older than me. They should know far better than I, because I was just a kid when there was another era where inflation was able to be sustained while the economy was weak. So for them to say with a straight face that higher inflation expectations must therefore mean a great economy coming in "2nd half 2008" is truly shameful.

This is why you are seeing rallies in the same tired groups that bet on 2nd half recovery. Would I buy retailers here? *Bleep* no. I'd be restarting short positions on individual names if I could. I'd submit retailers are where homebuilders were about a year ago - after a huge drop, hopes rise that "this is the bottom" and "it cannot get worse" and "we've seen the worse, time to get in" and we get these incessent hopeful rallies, that lead to another round of drops as reality washed over the dreamers in the coming months. People in NYC do not understand the corrosive nature of inflation on the consumer. They do not understand the real struggles that are happening *now*, not to mention in 6 months when their "recovery" thesis happens, as inflation continues to ramp. They conveniently put aside that 70% of GDP is based on consumer - the same consumer who is going to be eaten by inflation, that they are cheering.

My view has been made very clear on inflation - and well before any of these guys were even saying inflation was an issue... we are going into a World of Shortages. Our US centric viewpoint (narcissim at it's best) kept the blinders on all the smart folks in NYC as to the possibility of commodities ramping while the US economy falters. These same folks are today scratching their head at $100 crude when the most powerful nation on Earth is in recession (a recession they all denied until December 2007 - again the smartest folks on the planet). Too few resources chased by too many people...the definition of shortage, and the nexus of this new era of inflation .... and now with a world awash with US pesos, this imbalance will be exaggerated even further. And a stressed US consumer, whom retailers are dependent on, is going to retract further. Yet we're supposed to buy retailers here? Laughable. Macys (M) in fact today said they will stop offering quarterly guidance on sales or earnings. Sounds like a very confidant retailer. Of course they are sticking to full year guidance. ;)

If anyone wants a fun project - take the top 20 retailers in America. Plug in their full year 2008 analysts estimates today, and check back next February (2009) when we have the truth. You will, in my opinion, see a huge drop (from already heavily discounted levels) as throughout the next 10 months we hear retailer after retailer, warn and then "beat" lowered guidance - just like they've been doing the past 2 quarters. But over time, we will see 08 full year drop significantly. (but the pundits will clap about "beating estimates"). So all these great values on full year 2008 we hear about today, are going to look very different by the time we actually get there. But we can't be bothered with that now since $600 rebate checks are going to fix it.

Now one of my thesis for a 2nd half market (not economic) recovery is all this Fed liquidity will inflate all assets. One asset is stock prices. So I could certainly see that asset inflating... because more worthless dollars will be propping it up. And it will create an illusion that all is well in the real economy, because "the market foreshadows the real economy by 6 months". But no, it will be mostly billions of dollars swirling the world trying to find a home. And US equities, by default are going to get some of those dollars. While Main Street buckles under the inflation exaggerated by these moves. Truly a sad state when you really think about it, but we know whose side the Fed is on...

Anyow, just wanted to update you on the latest "consensus" of the brightest minds... "there is no way inflation expectations could be rising if the US economy won't be rip roaring later in the year...."

"What's that? 1970s and early 80s?"

"Put a sock in it, and stop raining on our parade. If you ignore that era than our thesis works perfect! Inflation is *GOOD*! Pass the Memo!"