Economic Fishtail ™

(Stocks in this article: Nasdaq: GRMN, NYSE: DAL, NYSE: NWA, NYSE: CAL, Nasdaq: UAUA, NYSE: MBI, NYSE: ABK, Nasdaq: SHRP, Nasdaq: DLAKY, Nasdaq: COMS, NYSE: HPQ, Nasdaq: MSFT, Nasdaq: YHOO, NYSE: IND, NYSE: ING, AMEX: SPY, AMEX: DIA, Nasdaq: QQQQ, AMEX: SDS, AMEX: DOG, AMEX: QLD)

Let the pigeons loose! Rather, let the chickens loose, as there they go again, running around all over popular media screaming "Inflation! Inflation!" However, there's good reason to believe Fred Mishkin's sharp rate-action theory could drive an "economic fishtail™".

Economic Data & Analysis

Consumer Price Index

The Bureau of Labor Statistics today reported the CPI Index for January. Showing a month-to-month increase of 0.4%, and 0.3% excluding food and energy, both measures exceeded consensus expectations by a tenth. Media and market pundits seemed to have awoken a bit anxious this morning, as they overreacted to the hot inflation figures. Inflation should be tempered in the future by the slowing economy, which by the way, looks to be in in recession. January's figures on CPI predate this effect. The headless chickens were thus again free to rule television, after apparently escaping the hallways of my high school alma mater.

Not that there's anything wrong with that...

The data was disconcerting, just not panic room level disconcerting. Food and energy continued to increase, both rising 0.7% from December. Food and beverages posted their sharpest rise since last February in fact. Foods producers are finally pushing rising input prices through to consumers, something that should have been expected here, given recent decent earnings reports from some of the individual producers themselves. In other words, they've stopped bearing the price and margin pressure alone. This is the result of the secular nature of current price rise, versus previous seasonal drivers.

Global demand has helped to keep petroleum prices lofty, and the same goes for foods, so the concern here is that inflation might not moderate enough, and that the economy could eventually exit recession to find a threatening pricing environment for stocks. The Fed would most certainly quickly lift rates to temper inflation, and investors might get quite queezy from the whipsaw ride. The situation and the Fed's handling of it could eventual resemble the fishtailing of a panicked driver in icy conditions. If the Fed overreacts to economic slowing, it could driver a sort of hyper acceleration of inflation, for which it would then need to overcompensate in the other direction. Fred Mishkin's genius could actually drive a frightening economic fishtail ™. Remember where you first heard that term, right here at your favorite Greek.

Market-Moving News

• Global Markets Hit By Bank Woes - Bloomberg


• Bank Warning Hits FTSE - FT


• Consumer Price Index January- BLS


• Consumer Prices Heat Up - Bloomberg


• Ackman Calls Insurers' Bluff - CNBC


• Crude Futures Back Off Highs - Platts


• IEA Pleads OPEC Keep Producing at Current Rate - CNBC


• ECONOMIC REPORT 2:00 - FOMC January Meeting Minutes


• Obama Chips Away, But Texas, Ohio Loom Large - CNN


• ICSC-UBS Weekly Same-Store Sales Rose 1.9% Yr-to-Yr Wk. Ended Feb. 16


• Weekly Mortgage Applications Drift, But Much Higher Over '07 Period - MBA


• Housing Starts January Rise From December, Permits Drop - Census Bureau


• Housing Numbers Commentary - CNN Money


• KKR Delays Debt Repayment Again - CNBC


• Regulators Crack Down on Big Pharma - CNN Money


• Yahoo! Earnings Calendar


• Garmin (Nasdaq: GRMN) Profits Off Chart - CNN Money


• Delta (NYSE: DAL), Northwest (NYSE: NWA) Deal at Risk - AP/Yahoo!


• Hewlett-Packard (NYSE: HPQ) Looks Strong on Earnings - MW


• Lufthansa (Nasdaq: DLAKY) Considers Investment in United-Continental Merger (Nasdaq: UAUA, NYSE: CAL) - MW


• Alliance & Leicester Profit Sinks 41% - CNN Money


• Sharper Image (Nasdaq: SHRP) Files for Bankruptcy - CNBC


• Bain Capital 3Com (Nasdaq: COMS) Bid in Doubt - Bloomberg


• Microsoft (Nasdaq: MSFT) Proxy Threat Pressures Yahoo! (Nasdaq: YHOO) - SA


• ING (NYSE: IND) Posts Small Impairment - Forbes


• Trade Embargo Outlasts Castro - AP/Yahoo!


• Greek's Week Ahead - Bond Insurers' 11th Hour


• Iran Daily: Tales from the Dark Side

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