Michael Gracie

Inflation is a nasty bug:

To reiterate, the last time Producer prices were this high, the Fed had rates up in the double digits — not at 2%…

Here’s a chart of the prime lending rate (as published by the WSJ) during “modern economic times” (each color change represents a rate change - click for larger view)…

I’ll bet few running around today remember how ugly things were in the midsts of that mountain-in-the-middle. But Paul Volcker was scrambling (and let’s note that he has been more vocal as of late too).

Producer prices have been rising for a while, but they held off passing on costs to consumers. That game is over. So, the highly leveraged are getting killed by plummeting home prices and the savers are getting killed by just about everything else.

And you can thank your Federal Reserve for that.

Hell = golf course

From betting on the game when the other team doesn’t show…
• Bridgewater Associates say financial losses from the credit meltdown will hit $1.6 trillion. That means we’re just a few pitches into the second inning in this mess. (h/t Paul Kedrosky)
• In 2008, autumn seems to be coming early (and looking a lot like 1987). I’ve mentioned this already.
• Retailers won’t be able to hide rising prices in the revenue line forever - consumer spending is invariably linked to the housing market. (h/t Calculated Risk)

From pointing fingers is old hat, and old hats fit nicer than new ones…

• European politicians are conflicted over how to deal with bloggers. Might I suggest they send a patsy to quiet them down?
• Some social networks are having trouble monetizing their traffic. Forget the problem of short attention spans amongst teenagers - blame Google.
• Global warming hysteria has a new friend, the plasma TVs everyone bought with their second mortgage loan.

And from technology is my oyster, now give it a sniff before you eat it…

• How does a thriving technology company morph itself into General Motors? Become extremely bureaucratic about minutia. ADDED: Make sure that minutia is completely irrelevant too.
• Voicemail is dead. I agree, not because of fabulous web services, but something much simpler - caller id and internal phone contact lists.
• Email is in trouble too? I’ll agree with that as well, but not because of the newfangled services that exist today. Too few people are ever going to want their communication publicized, and too many are shifting platforms for Outlook to be a long term handicap. Someone is going to rise to the occasion for the mainstream user.

Getting ready for the weekend

Topping the sleaze charts:
• Government officials got big loan discounts from Countrywide. “Friends of Angelo” included, who else, but the heads of congressional banking and finance committees. Note - these folks voted for a government mortgage bailout plan, and no wonder - they’re getting foreclosed on.

Voted “Best Value From Your Stimulus Check”:

• To hell with retail purchases - get “more bang” for your stimulus check dollar. A new “core inflation” measure is just around the corner…ex food and energy and sexual favors.

And last and least:

• A judge recuses himself from obscenity case over a purportedly obscene website, but it seems what was truly obscene was the media’s lack of fact finding standards. The media will continue to cry about the internet killing them, never understanding the simple truth - their product is for shit.

April retail sales rise:

Soaring fuel bills and a deteriorating job market haven’t stopped consumers from spending. Retail sales excluding cars rose 0.5 percent in April, more than twice what economists had forecast, a Commerce Department report showed in Washington today.

Retail sales weren’t too shabby in March either. Nor was the expansion of consumer credit that month - more than double expectation. Meanwhile, in inflation adjusted terms sales are sucking wind.

Has plastic use doubled down again?

UPDATE: Take out non-discretionaries and it’s really quite ugly.

Bernanke Says `Saving Glut’ Still Helps Lower Rates

Riddled with conflict. The savings glut is not domestic, the dollar is weak, there’s pressure to lower rates, and inflation lingers in staples. Mortgage rates have de-coupled from Treasuries - rates are dropping, but for lack of mortgage demand.

Meanwhile…

Former Fed Chairman Alan Greenspan adds insult to injury by taking a shot at US housing prices (and notably in a foriegn paper).

Mr Greenspan said he would expect “as a minimum, large single-digit” percentage declines in US house prices from peak to trough and added that he would not be surprised if the fall was “in double digits”.

Greenspan no longer has his hands on the rate button, but it seems the button is now broken (and he knows it). He’s no stranger to conflicting commentary as of late either.

UPDATE: Ok, maybe the button is just a little sticky

The Consumer Price Index is such a “feel good” number for bond traders, but beyond that, I think it is a fairly useless gauge of the true cost of living.

That line of thinking could be completely off, but at least I’m not alone.