The Sounds of Inevitability

All I can do is roll my eyes and throw my arms up in the air in disgust. Not because the market tanked today but because it took so long for the markets to finally gain some rationality. What has changed today that the past few months haven't been telling us traders? Nothing.

Now that euphoric stupor is behind us, let us objectively analyze where we are headed. It doesn't take a rocket scientist to figure out that major economic signs all point to inflation and slowing growth. Yet what I have a problem trying to figure out is how in the world did we get this complacent? What was so good about the economy and the markets for that matter? The past few weeks have been an exercise in futility in terms of trying to find any rational reason for the rally in the markets.

So the FED minutes were released today and the market literally wigged out on the news. This was NEW news? Last time I checked, the FOMC meeting clearly stated that inflation was still the primary issue. Today's FED minutes not only killed the "goldilocks" stupor but it also brought a lot of wishful thinkers in the market down to reality. The fact is there isn't going to be a rate cut. Sorry Jimmy, no rate cut for you in May, so can you please do all of us a favor and stop calling for a rate cut or predicting bottoms? Sorry Angelo, no rate cut for you to continue to hide behind and lie to the public that somehow Countrywide is immune to all of these economic slow down and inflationary issues. I have news for all of those goldilocks well wishers: The FED will raise interest rates before they cut them. They will not risk forming an economic environment of negative growth and rising inflation.

Here are the exact quote from FOMC meeting minutes: "....Further policy firming might prove necessary to foster lower inflation...but in light of the increased uncertainty about the outlook for both growth and inflation, the committee also agreed that the statement should no longer cite only the possibility of further firming.''

What that says is that the FED doesn't know what to do anymore. They are genuinely worried that the economy is slowing more than they are comfortable AND that inflation is beyond their "comfort" zone. All of these means that they are afraid of STAGFLATION. You don't think this could happen? Well, it is happening right now. Inflation is not under control and is getting worse. US is losing manufacturing and monetary leadership in the world. Our government and its citizens are addicted to debt and we are at the lowest savings rate per person in this country of all time. Did anyone check the price of oil and today's announcement that gasoline price is rising with no end in sight? How about the 9% price increase in milk and other dairy products that might not seem like much but upon closer inspection it dawns on you that everything is costing much much more these days. Never let anyone else tell you that economy is fine. Not the FED, not the Media, not anyone. They do not hold your best interest at hand. Remember, the reason why everyone is so bullish on the stock market right now is that those exact people are engaged in making money off of robust equity market.

Then there's the trade wars that have started between US and China, in what should become an escalating tension between these two superpowers. Yes, I said it, China is a superpower and we need to accept that. The sooner the better. And the sooner Paulson recongnizes this fact, the better for our economy. Dollar sank to its lowest level recently on this tension. Lest anyone should forget, China is one of the biggest buyers of our government debt. I am not even going to comment further.

Then there's the acceptance of the woeful housing market and the impact of subprime, which now appears is nothing compared to the issues surrounding ALT-A and the fallouts of failed subprime lenders and class action law suits by the holders of these worthless bonds. This will cast a dark shadow on this segment of the economy for years to come. For those engaged in the mortgage or housing industry that hasn't admitted to the problems and its impact on their respective companies are delusional and liars. Countrywide anyone?

Fact is no one will be spared. For those who have become complacent, today was the first warning sign. Go to cash or go short.