Michael Gracie

Via Bloomberg:

Rising consumer prices will leave more U.S. consumers unable to pay their debts and may lead to a “financial tsunami,” according to Bennet Sedacca, president of money manager Atlantic Advisors LLC in Winter Park, Florida…

Sedacca wrote that current financial-market conditions remind him of “someone standing on a lonely beach, armed with only a small bucket, trying to stop a rare tsunami that hits the shores. It is how I feel about our markets and the tools being utilized by the Federal Reserve, the European Central Bank and other regulatory bodies. They are overmatched for what they are facing and, worse yet, they helped create the mess in the first place by being far too easy with money and debt creation.”

I’m tossing in the chart that Bloomberg’s site left out:

I suspect the Central Bank is going to meet a pervasive lack of cooperation with regard to quelling international demand - the situation reminds me of how “uncoordinated” world partners (i.e the U.S., Germany and Japan) became before the 1987 market correction. It seems raising rates may only serve to exacerbate the in-house financial crises - meanwhile, if Sedacca’s thesis is correct, demand for (at least) domestic goods and services is likely to falter regardless of Fed action.

Not politics…just facts.

Nancy Pelosi announced today that Congress will be presenting an economic stimulus package early next week.

The S&P 500 Index reacted by shedding almost 40 points (and the Dow was down a cool 307). Maybe Pelosi & Company should stick to stimulating the gourmet food in the House cafeteria?

UPDATE: The markets didn’t like the Administration’s response either. All most people are going to do with $800 is pay their gas and electric bills.

UPDATE 2: Paul Kedrosky calls the Bush Administration response “rushed” and “panicky”.

I was having dinner a few weeks back with an old friend, and the subject turned to the US economic situation. I’ve known this guy for roughly two decades and trust him like a brother; he is a very smart character who doesn’t pull punches. I was inclined to listen - the fact that he analyzes high-yield bonds for a big investment bank’s private client group certainly didn’t hurt his cause either.

I’ve believed that indebtedness at every level of our society, from federal, state and local government, right down to consumers’ credit cards, home equity lines and first mortgages, has reached epic proportions. But when this fellow said he thought we were headed for another depression, my sceptical nature reared its ugly head. I have a predilection for looking at the downside, as I started my career in restructuring situations, but I relish that downside for its opportunity and I also know that nobody likes a doomsayer. It wasn’t until I read about our nation’s savings rate hitting zero that I began to rethink his claim.
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Prices are headed up. What a landmark piece of news! The Los Angeles Times reported Wholesale Prices Increase 0.3%. Not exactly a scoop.

Prices increase and decrease in trends. Traders (and the Fed) know this, but the government uses these funny little reports like the colored sign at Homeland Security.

We created a huge ATM network with real estate HELOC’s (home equity lines of credit), allowed the dollar to slide to pathetic levels, subsidized the food producers until we choked on our own gratuity, and gorged on foriegn goods supposedly in the name of cheaper prices, so this recent pop should come as no surprise.

Unfortunately, it didn’t need to happen that way, and Greenspan knows it.
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With regard to my comment yesterday on housing prices “already beginning” to correct, here is a report from across the pond: Guardian Unlimited Money | News_ | House prices fell in December.

Note that interest rates in the UK crossed the trough before those in the US. Rates started climbing in Australia round about the same time, and the lines at open houses Down Under have long since disappeared. Also keep in mind that the UK is densely populated, and is loaded with real estate speculators (those buying properties with no intention of moving in and/or investing in developments), much like many of the areas in the US which have see the biggest price increases. Those speculators will go running for cover first. Then the games begin.

I may be way off base, but these three countries (the UK, Australia, and the US), have something else in common too, trade deficits. Wealth being sucked out of the systems, some (like the US) at an alarming rate. With price driven by indebtedness, and liquidity on shrink, I say…

Welcome to the global economy.