Tuesday, October 19, 2010

Doug Kass Unveils "Screwflation"

Inflation? Deflation? Disinflation? Stagflation?

Hedge fund maven Doug Kass has unveiled a new term: "Screwflation" which encompasses all the themes FMMF has been sounding the warning alarm on.  What is Screwflation?

Screwflation, like its first cousin stagflation, is an expression of a period of slow and uneven economic growth, but, its potential inflationary consequences have an outsized impact on a specific group. The emergence of screwflation hurts just the group that you want to protect -- namely, the middle class, a segment of the population that has already spent a decade experiencing an erosion in disposable income and a painful period (at least over the past several years) of lower stock and home prices. Importantly, quantitative easing is designed to lower real interest rates and, at the same time, raise inflation. A lower interest rate policy hurts the savings classes -- both the middle class and the elderly. And inflation in the costs of food, energy and everything else consumed (without a concomitant increase in salaries) will screw the average American who doesn't benefit from QE 2.

Sound familiar?  I just did not have the creativity to come up with a catchy phrase for it.

I actually wrote a bevy of pieces on this in late 07 thru mid 08, highlighting that inflation nowadays was much more debilitating on the average American since she has far less wage power (in the private sector) than her counterpart in 1978.   I would submit (obviously) that the case for wage power has weakened even further in the few years since in the ever weakening labor market.  If Bernanke "succeeds" there will not be mass 5-6-7% wage increases in the private sector (but surely in the public!) to offset any of those future price increases*... also don't forget healthcare and college tuition, now fully subsidized by government as they 'help us pay for it', running 8-12% annualized each and every year (forever).  Ponzi baby.

*Remember, if you live like Ghandi with little food, little shelter, little energy use, and little clothing - you have nothing to worry about. [Get Your Cotton On]


If you are a RealMoney subscriber, the full article is here - Kass is calling for a top for the year as the QE2 meme has reached mob mentality.   However, as we complain about here, the wholesale change of the market to a computerized momo algo SPY trade makes traditional oversold, overbought calls much more hard than it used to be, when human emotion dominated.

Anyhow, nice reversal off the 13 day moving average (within a point) on the S&P 500 today as we all get 'rich' together (as long as you are wealthy enough to be in the markets, and your gains in stocks can offset screwflation of course).  Bread and circuses....

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