Angst ... everywhere

So, the market took another bath today. No big surprise. As a reader of this page, you will know that I have been worried that it would poop the bed since last June. I am only shocked that it has taken this long for people to start to get scared. Oil is $140 ... my guess is $150 top, but this is predicated on something -- anything -- serving to stop up the dollar. The Fed has placed itself in a tough position: it really needs to hike rate to halt the mess of the declining dollar and the inflation that it engenders. But to raise rates, is to cause the housing market to totally "get the trots." And plunge the economy into recession for sure. Consumer confidence has dropped off of the table to lows not seen since the 1970's. But higher oil and inflation will kill the economy as surely as higher rates. So what to do?

Look, raise the rates and take the recession on the chin. Let's clear out the housing bubble and move on with life: to fail to do so now, is only to delay the time in which it will happen. As described above, inflation and a dollar worth kleenex will accomplish the same, but with artificially low rates. But the housing market and recession will come, nevertheless. Count on it.

But with higher rates, we could see oil retreat, bringing down inflationary pressures and re-igniting consumer confidence. And really, it does not matter what the rates are in the big scheme of things: nobody is going to get a mortgage anyway, and those who are barely holding on right now won't make it through a recession anyway. Tough to say, but probably true. The notion of some ill-considered $300 billion foreclosure rescue plan is just a band-aid.

GM is in a very tough spot. As I have written recently, it is just a pension fund that happens to build cars and trucks. But the truck and SUV market numbers are even worse than we thought just a week ago. Far worse. There is considerable thought that they will have a liquidity crisis in the near future -- you can't bleed $3 billion each quarter or more and not suffer long-term consequences.

The inflation genie is out of the bottle: Asia is seeing real inflation pushing towards 10pct. Really. Don't look at those ex-energy numbers, that's tosh. Real inflation for producers and consumers is up, way up. With housing and real estate prices falling (essentially) globally, we have shrinking assets bases and soaring cost. And a shrinking global economy to go with it. A perfect storm in the making. Bond yields are going to start to soar, no matter what the idiot Fed does or the ECB or whomever. Oil demand is not a one-way street. It is to a degree dollar inverse correlated, but once demand is seen to bite the dust, it too will fall out of bed. No matter how fiercely they stock the stuff in the Middle East.

It is happening, folks. Right now. Believe it.

Peace out.