Wednesday, July 18, 2012

Risk for Stock Market Crash, Stagflation Increasing

Robert Wenzel, as mentioned previously, should be given careful attention when he posts on money supply and the short term outlook for the economy. His latest posts (my emphasis):

Is Stagflation Around the Corner? Core Inflation Climbs 
Yikes, how are the Fed apologists going to deal with this. Their favorite price inflation measure, the core index, is climbing. 
Core inflation rose at a 2.4% annual rate in June. The past year, apparel prices rose 3.9%, medical care +4.3% and the food index rose 2.7%. 
The energy index fell 1.4%. 
What's going on is that the latest slowdown in Bernanke money printing (M2 annualized money growth is around 4%) has pushed oil prices lower. It is also causing a slowdown in the overall economy and stock market. BUT, the previous money printing, which entered the capital goods sector is now moving into the consumer goods sector, that's why you are seeing apparel, medical care and food prices climbing. 
If Bernanke keeps slowed money growth into the election, we will be facing stagflation, with a possible stock market crash.
Citigroup's Surprise Index Heading South 
For the last few weeks, money supply (M2) growth has been slowing substantially. Economic numbers are getting weaker as is the stock market. 
Last Friday, Citigroup’s Economic Surprise Index was at -64. It’s in crash dive mode. Analysts are coming in with much too optimistic numbers. Last time it was this low was about a year ago. It’s slightly below 2010’s lowest reading (It's the red line in the chart below).

Since most economic analysts simply forecast, as the trend, what they have seen over recent months, they miss the inflection points. In 2011, they missed the upward economic activity that resulted from the aggressive money printing at that time.  Now that Bernanke has slowed money growth, they are missing the new downturn developing. If Bernanke does not start accelerating money supply growth very soon, we are headed for a major economic and stock market crash. You heard it here first. The Surprise Index shows that most economists are too bullish and don't have any idea of the dangers ahead. 

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