Wilbur Ross on Stagflation and Possible Bank Failures

I have to say it is almost funny to see how many people have jumped on the stagflation thesis I outlined last fall. Every financial TV show this weekend was trumpeting it - thanks for the update pundits! Just shows yet again, on Wall Street, people deny deny deny until the facts hit them square in the face. Ironically, of all people Greenspan had mentioned in his book the potential for stagflation [Greenspan Jumps on my Stagflation Thesis]. However, he said the Fed would need to RAISE rates to combat it - instead we lower rates - funny.

Now it is showing up everywhere [Stagflation - the New Sexy Word] [Stagflation Hits Wall Street Journal Front Page] - mostly out of the mouths of folks who denied recession not even 3 months ago, and told us once the US economy slows down inflation fears will go away. Remember, this is narcissistic thinking which I believe Americans really need to avoid. Even our "brightest lights on Wall Street" seem to have a world view where everything revolves around the US of A. Dangerous. The more years I spend watching Wall Street, the more I see it simply as "conventional wisdom" herd group think at its worst. The problem is the herd has so much money, they can gallop in the wrong direction as long as enough of them all stay together in a pack. Which is why you can be intellectually and factually correct on a thesis, but dirt poor - by the time the herd realizes the truth they will have destroyed your positions betting against them. Only when the facts overwhelm them will they change direction... otherwise, Kool Aid reigns supreme.

Anyhow, enough about Wall Street lemmings - let's listen to someone who actually makes money and runs businesses... Wilbur Ross. He seems to be on my bandwagon both in the stagflation camp (before it was sexy to be on that bandwagon), as well as commercial real estate slowdown (again, before it was sexy to be on that bandwagon), as well as more serious problems in the financial system ("it's contained")

• Billionaire investor Wilbur Ross says the current market downturn differs from previous slumps in that no American banks have yet failed this time, but he suggests that's about to change. "I think that's going to be the next wave, and coupled with problems in the commercial real estate market; I think they'll be the next bubbles that burst," the chairman and CEO of W. L. Ross and Company told CNBC's "Squawk Box" in an exclusive interview.
• "I think that the big banks won't fail in the sense that they will go to zero and depositors would lose money," Ross replied. "I think the Fed and other regulators will make things happen.| I think it's the medium-sized banks, and particularly some of those that got overextended with the subprime and other kind of mortgage debt.| I think those are the ones that had the serious mismatch, making 20- and 30-year loans based on 90-day deposits."
• In the meantime, Ross said he didn't think the U.S. economy would recover any time soon.
• "I think at best we're in for stagflation," Ross said, referring to the combination of higher inflation and weak economic growth. "I think the consumer has been tapped out for quite a while and is frightened by the poverty effect of seeing the house go down.