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Inflation's Back: Higher CPI

The consumer price index was released today by the Bureau of Labor Statistics. It's higher than the 0.5% increase expected - http://www.bls.gov/news.release/cpi.nr0.htm - it's 0.6% and while that may not seem like a lot, it means the annual inflation rate is now 5.5% although the so-called core (less food and energy - like you can live without them, right?) is up a modest 0.2% and 3.3% annualized. Still, that puts tremendous pressure on the Fed to raise rates. Unless, of course, we get some conveniently timed terrorist attack to bail the Fed out of of their rock & a hard spot.



Oh yeah, the feds do admit there's trouble at the grocery store:

"The food and beverages index increased 0.9 percent in May. The index

for food at home, which rose 0.1 percent in April, advanced 1.4 percent in

May. The index for dairy products rose 6.8 percent in May, following a

1.6 percent rise in April, and accounted for about one-half of the May

grocery store food increase. Fresh whole milk prices rose 14.7 percent,

its largest advance since a 15.5 percent rise in July 1946 after the end

of World War II price controls. The index for meats, poultry, fish, and

eggs increased 1.6 percent in May. The index for beef and veal, which

declined sharply in each of the first three months of 2004, before turning

back up in April, increased 2.8 percent. The indexes for pork and for

poultry also rose sharply, increasing 2.0 and 2.6 percent, respectively.

The index for fruits and vegetables, which declined 0.6 percent in April,

rose 0.7 percent in May. The indexes for fresh vegetables and for fresh

fruits increased 1.2 and 0.5 percent, respectively. (Prior to seasonal

adjustment, fresh vegetable prices fell 0.3 percent, while fresh fruit

prices rose 3.2 percent.) Among the other major food at home groups, the

indexes for nonalcoholic beverages and for other food at home each

increased 0.4 percent in May. The index for cereal and bakery product

rose 0.2 percent. The other two components of the food and beverage index-

-food away from home and alcoholic beverages--increased 0.2 percent and

declined 0.1 percent, respectively."

Nice to see booze prices went down, but a decline of 0.1% works out to 19 cents on a bottle of Bacardi Light. Gee thanks...like that's going to help when milk is up a buck.



Web Bots"Wall Around the Clan"?

SEC Limiting Bears?

Once in a while a call from a principal in a brokerage firm does a lot to explain what the"big picture" is all about. On Monday, I spent the better part of an hour on the line with one such source who put a number of things about the current market into perspective."Any clue why gold is going down if there is really inflation?" I asked."Oh sure. Inflation is happening like crazy in things you need, like food, but it is more than balanced by the decline in products that are in the"want to have" category." That's no doubt why the PPI hasn't been released by BLS. Politics.



OK, this also explains why gold is going down at precisely the moment it should be going up."But you know what's really criminal?" my source continued."Go ahead, make my day." I prompted.



"Well, compliance departments are now effectively running most brokerage firms, not guys like me with 30-years in the trade. For instance, one of the major firms has sent out letters last week from their compliance department advising those of us who occasionally put managed accounts into short positions with those so-called 'double beta" funds [leveraged short funds that gain $2 for every $1 of decline-G] that we can't do that any more under proposed rules. What's more, they are trying to convince us that not only can't we leverage short side action in managed accounts, but they also are trying to keep us from 'parking' managed accounts in money markets or bond funds...even is that's the best move in the client's interest! They're pushing us through the administrative back channel to be long the market all the time!"



Needless to say it was one hell of a phone call, not just because it happened to come as the ^IXIC was flopping around its 50-day moving average. More important is that it put the story on Mark Faulk's web site http://www.faulkingtruth.com/article/?Investing101&1005 alleging that NBC Dateline has been sitting on a short selling scandal that could reach a trillion dollars into sudden perspective.



"So you're saying that the SEC has be deliberately setting up the American investor so that at least the discretionary managed accounts won't be on the short side of the market if we get a crash?" I asked, incredulously."Managed accounts, not individuals at this point."



Maybe not yet, but you've heard in the past the administration trial ballooning the notion that short selling is un-American and maybe treasonous.



"That's about the size of it George. Go look at what the SEC is hounding compliance departments about and you'll find that regardless of what they claim, the net effect is that they are slowly going through a plan to make it more and more difficult to play the short side - and I think we could be starting another down leg any time now. I can't begin to tell you what a problem this is for me. I have clients coming to me who had one and a half million dollar accounts at the peak of the dotcom bubble. They come to me with half a million and want me to make it back for them before they retire. Well, if I can't park them in cash when the technical indicators I use are indecisive, or can put them into double beta short funds when that's the right move, it really reduces my potential to do the right thing which is provide the maximum returns for the client."



If you can't sleep some night, click over to http://www.sec.gov/rules/proposed.shtml and wade through the SEC regulations and see if they don't have some bias toward being long stocks. Regulations like the new short selling rules are not where the main action in this is. It's offline in meetings. In many firms there are now all-day weekly meetings involving brokerage firm presidents and their heads of compliance with SEC staff.



What has started as"in the consumer's interest" may turn into the financial equivalent of putting chains on the theater doors, knowing full well that a fire could break out inside the theater.



And remember, a fire - a market shocking exogenous event that is apparently beyond the control of government - is just exactly what may be coming. However, unlike real life theater fires, where arson and insurance investigators would doggedly get down to facts, the financial fire (when it happens) will be papered over and inappropriate blame will be placed on all short sellers. And those investigating will be able to use the occasion to gobble up more power and control in our Constructionally Endangered country. And we note there's never been full disclosure about large-scale short sellers immediately prior to 9/11, although we have lingering ideas that they weren't all foreign nationals.

urbansurvival.com

*) aus dem Richard-Russel's Bulletin-Board-forum geholt