Inflation Shock

Retail maven Howard Davidowitz paid another visit to Yahoo’s Tech Ticker this week.  And despite signs of improvement in consumer confidence and retail stocks rising, Davidowitz is steadfast in his belief the consumer is dead. 

Rather than summarize, let me just highlight some of his best one-liners:
On retail:

* “The retail business is terrible… It’s almost all negative.”
* “We’re going to close hundreds of thousands of stores.”

On the consumer:

* “They’re still over leveraged, they’re losing jobs, their credit has been cut back.”

On America:

* “We are in the tank forever. As a country we are out of control, we’re in a death spiral.”

On the stock market:

* “We’re in terrible shape. That’s what the fundamentals tell me. I can’t explain the stock market.”

The U.S. added 111 lenders to its list of “problem banks,” a jump that suggests rising bank failures may force the Federal Deposit Insurance Corp. to deplete a reserve fund that shrank 40 percent this year.

A total of 416 banks with combined assets of $299.8 billion failed the FDIC’s grading system for asset quality, liquidity and earnings in the second quarter, the most since June 1994, the Washington-based FDIC said in a report today. Regulators didn’t identify companies deemed “problem” banks.

This report, of course, comes right on the heels of bank CEO John Kansas stating that the United States banking system will lose some 1,000 institutions over the next two years.

John Kanas’  private equity firm bought BankUnited of Florida in May.

America is just a few days away from a possible day of reckoning. I again call attention to this day, August 25, when the Federal Deposit Insurance Corporation issues its 2nd Quarter report for 2009 on the state of health of American banks.

Last year, Warren Buffett says, we were justified in using any means necessary to stave off another Great Depression. Now that the economy is beginning to recover, however, we need to curtail our out-of-control spending, or we’ll destroy the value of the dollar and many Americans’ life savings.

Some not-so-fun facts from Buffett’s editorial today in the New York Times:

* Congress is now spending 185% of what it takes in
* Our deficit is a post WWII record of 13% of GDP
* Our debt is growing by 1% a month
* We are borrowing $1.8 trillion a year

Recipe for disaster.

“On May 13, 2009, Gerald Celente released a Trend Alert, reporting that, “The biggest financial bubble in history is being inflated in plain sight,” and that, “This is the Mother of All Bubbles, and when it explodes it will signal the end to the boom/bust cycle that has characterized economic activity throughout the developed world.”

That was in May.  Let’s fast forward to August 2009.  Mr. Celente has updated his forecast to:  “More Bubbles Waiting to Burst.”

A headline for you…just in case you missed it last week!

Anyway, I think President Obama is getting a little ahead of himself.  You see, we’ve been watching the mortgage real estate resets.  And if you can interpret a graph, then I think President Obama’s enthusiasm will need to be put on hold.

I’m just saying…

Professor Roubini, of New York University’s Stern business school, believes that while such a major change is some way off, the Chinese government is laying the ground work for the yuan to displace the dollar’s current standing.

Professor Roubini argues that China is better placed than the US to provide a reserve currency for the 21st century because it has a large current account surplus, focused government and few of the economic worries the US faces.

China will soon want to see the yuan included in the International Monetary Fund’s special drawing rights “basket”, he warns, as well as seeing it “used as a means of payment in bilateral trade.”

Not a good sign to hear that we caffeine addicts face higher prices for our daily cups o’ brew.

The price rise is due to poor crops and robust demand. (See, you did learn something in Econ 101.)

“We are in a dangerous situation,” Andrea Illy, chief executive of Italy’s leading coffee ­company, exclaimed last week, warning that prices could “explode” due to supply shortages.

Until recently, it was widely assumed that the global economic crisis would damp consumption and prices for coffee. However, that forecast proved wrong, since demand for coffee has remained high, even while consumers have moved from cafés to home drinking.

International coffee prices last week hit a seven-month high. Coffee is now $1.28 per pound. This is up 22 per cent from its December low, in New York trading.

The spot price of Colombian coffee jumped to almost $2.20 a pound, a 12-year high, due to supply constraints.

Speaking of coffee. Let’s look at sugar:

Sugar prices in New York and London rose to their highest level in almost three years. (About $450 a ton.)

A serious shortage of coins in Argentina causes problems for consumers and merchants.

Think you’ve got cash problems?  Just be glad you’re not in Argentina.

No one knows the inconveniences of the peso better than Buenos Aires’s convenience store owners. Walter Teich and his wife opened one right in the center of town three years ago. He’s seen a lot of coins come and go, but never so few as right now.

“There’s no coins, they don’t exist,” said Teich, standing next to a hand-written sign taped to the cash register telling his customers as much. “And it’s getting worse all the time.”

The coin scarcity has created a strange predicament: Merchants regularly refuse to sell their goods or services if it means they’ll have to give coins back as change. For small transactions, they’d rather lose the revenue than spare the change.

“President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.”

This strikes me as a little bit odd.  Has not the President been the one driving this chaotic tumor-like growth of our government and its spending?

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”

ahem.  As we’ve been saying….

Debtor