A Confused State

Do you remember that old Looney Tunes cartoon, with the hunting dog and the fox, where the dog is trying to prove his worth and join the hunt? The plot line for the cartoon is along the lines of the sly fox befriending the dog, convinces him that he is not a fox and that he will help him on his quest to find the fox only to then lead him on all their misadventures? Okay so that may not narrow it down much but I am sure if I threw the quote out there "Which way did he go George? Which way did he go?" that it may ring a bell for you. So now does it sound familiar?

Well that quote just kept running through my head all morning. "Why?" You may ask. Well I made the mistake of reading a lot of recent articles on how the economy is doing and where it's heading. I just found the quote rather fitting, not just the quote but the metaphor that is the cartoon, the clueless dog chasing the sly fox being mislead at every turn (doesn't hurt that the fox's name is George).

I mean you've got the great Ben Stein out there claiming he has no idea what all the fuss is and that the economy in his opinion is doing rather well. But reports are out now that show that the CPI is increasing and inflation is on the rise, up 0.8% the highest in 2 years. But if inflation is such a concern then why did Bernanke and the Fed just cut interest rates another quarter point? A move that is meant to help spur borrowing, in the wake of the sub-prime debacle, but one that runs the risk of thus furthering inflation. Now former Fed Chairman and economic mastermind Alan Greenspan has come out and verbalized that he fears the odds of a recession are "clearly rising" with economic growth "getting close to stall speed." Coupled with the current inflation reports and you have stagflation. A feared stagflation period not seen since the Nixon era and recession of 1973.

Then you run into Neil Cavuto who is drastically down playing the possible down turn in the economy and the crisis that is the housing market, more specifically the disasters of the sub-prime market. Cavuto claims that 95% of mortgages are paid on time every month and of the sub-prime market 9 out of 10 are being paid on time. Those stats don't sound all that bad. So then why is the President proposing a protection program to help bail out the sub-prime market. Personally I think you need to let these people, home owners and banks, fall flat on their face. Why should everyone else suffer (where do you think the money for the bail out is going to come from) for some home owners over extending themselves and the banks taking their risks and failing. Isn't that the point of "sub-prime", a load with interest above the prime rate? If the borrower wasn't a risk then wouldn't they just get the prime rate? The lender knew they were a risk and took it anyways choosing to try and capitalize on the high interest they would charge/collect. Maybe I'm too much of a greedy Capitalist but isn't that the point of business and for that matter of life. I believe that's the exactly what we are trying to teach or kids. Think things through and make good decisions...oh and don't forget that take responsibility for your actions thing.

You also hear how the Dollar is weakening against the Euro and other foreign currencies and how bad that is for the US, which yes over the long term can be devastating (reference Mexico and the devalued Peso). However, short term there is a lot to be gained (i.e. current reports that the trade deficit is at the lowest it's been since the third quarter of 2005). A weaker dollar means US goods are relatively less expensive then foreign goods this making them more attractive. Over the short term that could lead to an increase in sales, however again not a sustainable long-term advantage.

Bottom line is no one really knows where we are going. The most common theory is that it's not to a good place and will maintain that way at least until consumer confidence begins to rise. It will be interesting to see how retail fairs during this Christmas season. This could be the best indicator of them all.