Twenty-four hours after Ben Bernanke notified global markets that the Federal Reserve Board “uncertainty about the inflation outlook remains high”, trading in US markets responded.
Like the 1968 Tet offensive against US troops in Vietnam, or terrorists’ mortar shelling of the Green Zone in Bagdad, or for old timers, the Little Big Horn when George Custer and Geronimo moved things around to meet, Thursday’s action became a massacre.
The DJIA dropped 358.41, while the S&P loss 38.82, falling to 11,453.42 and 1,283.15, respectively. NASDAQ closed at 2,321.37, down 79.89.
Treasuries rallied across the board, the 2 year note closing with a yield of 2.66 and the 10 year moving to 4.03 percent.
Commodities advanced reflecting more confidence in future inflation and a weaker dollar than a robust effort to thwart rising prices. Both developed and emerging countries are experiencing decade and multi-decade inflation figures highs.
Because this is the end of the month and end of the quarter, some say that window dressing took place on Wall Street. With decliners leading advances 2,742 to 473, and 41 new 25 week highs versus 409 new 52 week lows, window dressing alone seems doubtful.
I predict businesses will find it tougher making money in the third quarter.
Not only are consumers tapped out but they are also fearful of the economic future. Analysts are being forced to lower second half earnings estimates; however, the first iteration is never the last.
I predict inflation will be undervalued in the new earnings projections.
This upcoming Fourth of July holiday, friends and family will come together, compare notes and swap stories about Main Street woes around food, drink, expressions of patriotism, and election year political debate.
As they bid one another goodbye, the summer of 2008, dressed in a sluggish growth outfit, with matching .2 percent core inflation accessories, will be waiting to hitch a ride.
I wish this were a Grimm fairytale. But it is not.