Inflation

GDP contracted, a given.  The Feds loaning and giving billions to the top banks, backing commercial paper and money market funds.  Banks holding the money, doing the opposite of the intention of $700B bailout.  How long has it been since it was shoved through congress with the warning that there would be a financial meltdown without it?  There's a credibility gap with the Treasury with them using the 'cry wolf' approach.

Everyone is focused on the trees as inflation moves silently through the forest.   I can see a headline on the near horizon:  The world struggles to contain inflation that has jumped into the double digits.  People would argue that commodity prices are falling.  I am looking at the massive printing of money to meet the trillions of spending set in motion by Congress and the Treasury Department.  And if we end up with a Democratic controlled House of Representatives, Senate, and Presidency, then the momentum will continue with deficit spending to rescue the 'American people.'  

The good news is the stock markets don't mind inflation because prices can be raised to offset it.  The bad news is the consumer's money is worth less unless they are receiving raises or creating money to meet or exceed the inflation percentage increase.

What I find unfortunate is that we have had a check and balance for the last 8 years with a Democratic controlled Congress and a Republican presidency, and still we increased our debt by the trillions.  It appears that regardless of who is in control, the same path is continued.  I know that, at the world level, we will reach a peak regarding the debt level because there will no longer be willing and eager buyers without huge interest returns.  There will be a point where the answer is 'no.'  That will be a good turning point and also a painful one for those of us who participate in the financial system; virtually all of us.

Red Flags

Emotions of the collective are ruling the roost.  The European markets are showing their level of confidence in what congress is doing with the proposed bailout by the Feds.  With a big run to commodities, especially oil at a jump of $25 in one session, that is a sure sign that there is information in the subconscious about to surface that reflects a stark picture of our financial system.  

Democrats and Republicans are working to add more to what the Fed recommended to stabilize the system.  Making the government have access to owning the company's stock who sells the 'toxic mortages' is a form of nationalization like what happened with Frannie, Freddie, and AIG.  This dilutes the value for the stockholders, like you and me.  Even those big mutual funds and institutions holding shares are made up of contributions by the individual.  Now we have an idea of the exposure of number of companies that may have their shares diluted by just looking at the list where short selling is not allowed.  The list grew bigger today.  

One other addition I would like to comment on is a provision to help mortgage holders prevent foreclosure.  What about those who have the financial capability to pay their mortgage, yet walked away because the loan is worth more than the home?  What percentage of the overall defaults are made up of these individuals?  They do not need to be rescued.

Going back to my original post of 9/15 and talking about the 'Big Bang,' the latest is the collider is out of commission for at least two months.  I predict there is a timeline similar for the markets and the turmoil to continue.