Back to Main Street....

While every minute of every trading day seems focused on these financial issues, there is a whole real economy out there. And this is our pickle. Once we get through with the "credit contagion" issues - we still have the (regional) recession to deal with (for new readers, by regional I mean those in rural states are living the highlife as are many associated with energy i.e. portions of Texas/Oklahoma). This is why this market is extremely frightful - we have double trouble - the credit issue on one hand that gets all the attention and then a very real potential for a powerful consumer led recession the likes of which we have not seen since the early 80s. The latter gets no attention as Wall Street is dominated by NYC types and all they care about is bailing out the financial system - thats why Fed cuts to zero would make most of them happy - no matter what the effects on the real economy. I was looking through CNNMoney.com today and it is striking to now see the stories of the real effects, I outlined long ago really beginning to hit people. [Do the Bottom 80% of Americans Stand a Chance?] But since it's a slow motion implosion it is not sexy like Bear Stearns turning into dust within 72 hours. So I believe it continues to get ignored and/or people are simply ignorant - with the salaries made on Wall Street, it creates a disconnect from Main Street.

What is striking is while the system is pumped with floodgates of paper money, and inflation is constantly pooh poohed as "moderating by 2nd half 2008" - almost all these stories have the common thread of rampant inflation busting frail budgets - keep in mind anecdotal study after study says 70% of Americans live paycheck to paycheck regardless of income strata (as we have greater incomes, our spending expands at similar pace). I am aghast at the CNBC cheerleading (paralleled by countless blogs, economists, and pundits) that the decision to cut 75 basis points instead of 100 is a clear sign the Fed now cares about the dollar and inflation. Pathetic. 75 basis point is a historic type of cut, rarely done in the past. 100 basis points was NEVER done before (don't quote me, but I believe I read that). So this move to only do 75 is "good" for the dollar and "a strike back at inflation"? Really, the logic on the street is beyond me many times. I find it laughable. Main Street is being sacrificed to the gods so that NYC can be saved. Bottom line, no matter what line of crapola people in NYC says over and over - maybe if they say it enough they will believe it and not feel as guilty.

Let's look at some headlines

Inflation is Americans' Top Economic Concern (the other 10% work in the Fed or in NYC investment houses)

• Americans are worried about the economy, and inflation tops their list of concerns. Ninety-one percent of respondents to a recent poll said they are somewhat or very concerned about the rising rate of inflation, according to a national CNN/Opinion Research Corp. poll released Tuesday. And 86% said they are worried about jobs. Of the over 1,000 American adults surveyed in the poll conducted March 14-16, 65% said they are "very concerned" about inflation, and 26% said they are "somewhat concerned."
• Through a series of recent speeches, Fed officials have made it clear that their primary concern is unemployment. Though they have stated that rising inflation is a worry, the central bankers have pledged to continue to cut rates in an attempt to prevent the economy from entering a recession and losing even more jobs. "The Fed's biggest concern right now is supporting the financial system by trying to stimulate growth," said Bullard. "The Fed is counting on the fundamentals - rising inflation should dissipate as the economy slows." (just like in the 1970s, right?)

A Slice of Pizza Gets Pricier

• Pizzeria owner Joe Vicari shakes his head as he prepares to rip open a 50-pound bag of flour for another batch of dough. "That's 37-bucks. $37. I couldn't believe it!" says Vicari.
• Since opening Mariella Pizza in mid-town Manhattan 30-years ago, Vicari, says he has never experienced such a jump in the cost of his ingredients
• "I can't even believe how much the flour [goes] up. When I see the bill I can't believe it, that's too much," says the veteran pizza maker, who emigrated from Sicily. Only four weeks ago, Vicari says, he was paying just $16-a-bag for Gold Medal brand flour, which at $37-a-bag now seems more golden than ever. (agflation, it's everywhere)
• Cremosa, the source said, is allocating flour to restaurants, refusing to allow customers to buy more than they had purchased the prior week. (allocation = rationing = shortages)
• Vicari struggles with the thought of raising the price of a slice, which he lifted to $2.50 only a few months ago due to an increase in cheese costs. But, he concedes, if flour rises a few dollars more, above $40-a-bag, he probably will pass along the higher expense to customers.
• Why? You can lay part of the blame on ethanol. Huge demand for ethanol has farmers planting more corn to produce the fuel when they could be growing wheat. "Ethanol was competing against wheat for acres in 2007," said Joe Victor, grain analyst with Allendale Inc.
• "Fifty-nine-percent of everything we raised in 2007 is leaving the U.S.," said Victor. "That's 9-10% greater than normal." As a result, Victor said, U.S. wheat supplies are at their lowest level since the end of World War II, another factor pushing prices skyward.
• The good news for U.S. consumers is that high wheat prices have led farmers to plant a large crop of winter wheat, which could temper retail prices later this year. (and then next year the shortages will be back to corn, or soybeans, or whatever they are substituting to plant wheat)
• "It's killing us, it's killing us. It's forcing me to pass it on to the consumer," said Frank Karalis co-owner of Europan Bakery Café in Manhattan. Karalis was holding a menu on which he had just crossed out every price and written in new, higher prices he plans for next week: Bagel with butter $1.30, up 20-cents; Muffins $2.25, up 25-cents; Paninis $7.20 up 25-cents.

Cash Strapped, and Driving Less

• Americans are finally driving less - thanks to rising gas prices. Seventy-two percent of respondents to a recent poll said recent price increases in gasoline have caused financial hardship for them or their households.
• Rising fuel prices have caused most Americans to cut back on their driving. Of the over 1,000 American adults surveyed in the poll conducted March 14-16, 64% said they have made some changes to their driving behavior as a result of higher gas prices, with 19% saying they have cut back on driving enough to have a major effect on their daily lives. And 5% say they have stopped driving altogether.
• Gas sales have started to sink as Americans curtail their driving. A recent Commerce Department report showed sales at gasoline stations, which have been bolstered recently by record-high fuel prices, tumbled 1%.

I won't copy it over, but if interested, here is "13 short blurbs" of typical Americans and the same concepts I have been proposing - jobs in the service economy are not paying most enough to keep up with real world costs, high inflation is eating away at living standards, people are giving up on a lot of things just to get by. This is why I find retail stocks, and their rallies to be bull traps. 2008 and 2009 are going to be very painful for the consumer. And the myth that all it takes is 5.5% mortgage rates to get the home boom reinflated is also simply fiction. Maybe for those in the 10-20% percentile in America. But not for most. Not until home prices fall meaningfully - something every government agency seems to be working in concert to help forestall or prevent. Damn thing about market forces - they are all powerful (in the end).