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Gas is Bernanke's Big Monkey Wrench
The Ben Bernanke Bonanza continued Friday as world investors gear up for a flood of money soon to hit primary dealer banks and, in turn, the market. The Dow is up 60 points as of this afternoon but could be up even higher if it weren't for a clear rotation out of defensive positions. The utilities sector is down 0.3% and healthcare is down 0.3%. Typically conservative Dow components like Merck (MRK) Pfizer (PFE) and Wal-Mart (WMT) are red. And that's seemingly only a result of the investment community ditching their safety plays for riskier assets.
That being said, a few pieces of economy data today tossed up some red flags that the market is happy to ignore while it celebrates. Let's start with the Consumer Price Index. The 0.6% month to month increase was the biggest leap since June 2009. Not surprisingly, that was largely down to a 9.0% increase in gasoline. And you may recall that the Producer Price Index yesterday also showed its biggest increase since June 2009. Thankfully, core price (minus food and energy) were up only 0.1%. Nevertheless, you have to second guess the Fed a little bit when it announces unlimited money printing in the face of inflationary risk like this.
And speaking of those high gas prices, check out retail sales. Retail sales showed a 0.9% increase which is a fairly average result. There was a decent 1.3% gain in autos which held up the results. However, the rest of the report is mostly subdued until you get to gas stations, which were up 5.5%. Consequentially, gas accounts for 67% of the increase in retail sales during the month. Sure, you want to see retail activity pick up but when most of the money is going into fuel it's not a good sign.
Even Ben Bernanke himself admits a large scale dollar printing program like the one he unveiled yesterday risks inflation. It's no wonder oil is up $2 in the last two days (it briefly touched $100 this morning). I'm not so sure quantitative easing is helpful to the economy when it also stokes energy prices that were already at danger levels to begin with. Not to mention our drought-stricken crop fields that have corn hovering just below the records as well.
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