Wednesday, May 6, 2009

Bernanke's screed

Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while, implying that the current slack in resource utilization will increase further. We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly. In particular, businesses are likely to be cautious about hiring, implying that the unemployment rate could remain high for a time, even after economic growth resumes.

In this environment, we anticipate that inflation will remain low. Indeed, given the sizable margin of slack in resource utilization and diminished cost pressures from oil and other commodities, inflation is likely to move down some over the next year relative to its pace in 2008. However, inflation expectations, as measured by various household and business surveys, appear to have remained relatively stable, which should limit further declines in inflation.

There is not a snowball's chance in hell for this to happen. The opposite will happen with every one of Bernanke's statement in bold! And the antidote for inflation is the commodity stocks. Over thirty years ago Warren Buffett had an article in Fortune called, "How Inflation Swindles the Equity Investor." Buffett called it the "inflation tapeworm." Read about it in Snowball, Buffett's biography!

The inflation tapeworm is already being fed, but Fed officials can't find it, because they don't know where to look!

Commodity stock investors can't seem to find it either. But then, these investors sold off the steel stocks yesterday, because GM's shutdown will hurt AKS' steel production!

Now remember how those that make tautological arguments lose? David Rosenberg did the same thing again yesterday in regard to Bernanke. He summed him up thusly:

The whole recovery story boils down to government stimulus, the arithmetic from lesser inventory withdrawal, a reduced drag from housing and hopes that overseas demand will underpin exports. While Bernanke did try and sound optimistic, something tells us that he knows that any recovery, when it occurs, is going to be fragile at best, unsustainable at worst. Invest accordingly.

Fragile at best, unsustainable at worst??

Rosenberg can't find the tapeworm either!

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