To: russwinter who wrote (63536 ) 6/13/2006 1:03:51 PM From: ild Respond to From today's CI:A few very last comments. First, we need to keep firmly in mind that inflation shows up in headline economic statistics with a lag. Much of what we see in current numbers was born six to nine months ago. The importance to us as investors is where the effects of current real world inflationary pressures are heading, not necessarily where they have been. Although we believe these pressures are real, we also believe the macro US economy will slow ahead, which should theoretically be a breaking mechanism for macro inflationary tendencies. Of course these current anecdotal inflationary numbers are appearing just as many a Fed member over the past week or two has been talking up their fear of inflation. Pretty nice timing in terms of being a double hitter message to the markets. But what will matter most ahead is not what the Fed says, but rather what they do. C'mon, let's face it, if the Fed were really scared of inflation, wouldn't they have thrown a 50 basis point interest rate increase or two into the monetary tightening mix by this point? Have we simply been watching a heavy dose of Fed jawboning about inflationary pressures over the recent past? Jawboning aimed at bolstering Fed credibility as vigilant inflation fighters (although they are nothing of the sort over the long run) in an attempt to perhaps ding commodity, energy and precious metals prices? So far, the dinging, if you will, has been working. If the Fed were truly serious about attacking the near term inflationary trends you see in the charts above, they'd spring for 50 basis points at the June month end meeting. We'd assign that about a zero probability at this point. And here's the reason why.
