Inflation reaches 9.6%!

by Larry Levin


Does the title of today's missive sound silly, outrageous, absurd? Well, maybe it does, but I want to make a point about government reporting techniques. At least I have your attention.

When the government releases the final 3rdQ GDP report next week, most economists expect it to show strong 4.9% growth. Compare that to the miniscule sounding 0.8% consumer price index (CPI) data. The difference, however, is that the GDP data is released once it has been "annualized," while inflation data is not; it is released in its monthly form. So let's see what these reports would look like if they were expressed in the same fashion, shall we?

As we just learned Friday, government reported CPI inflation data showed a 0.8% increase in November. The GDP equivalent of this would be a quarterly growth rate of 1.225%, and a monthly growth rate of just 004083%, which hardly sounds exciting. Of course, 4.9% "during X or Y quarter" sounds much better. Well, what's good for the goose is good for the gander (so I've been told), so let's annualize the inflation data the same way the government massages the GDP data.

If the government were to report (nasty) inflation data the same way it reports (wholesome) GDP data, we might be shocked more than occasionally. Friday's CPI data, if annualized, shows inflation running at 9.6%. And if that wasn't bad enough, consider this: wholesale inflation (PPI) would be reported at a banana republic rate of 38.4%! Yes, I know the inflation data is released in it monthly form because of potential short-lived price spikes, but do you think this will change now that food and energy increases haven't spiked - but slowly risen for years? Naaaaah, let's just keep drinking the kool-aid, make mine with Splenda.

So will an inflation "scare" rock the markets this coming week? That's doubtful. I think it will take a lot more of these kinds of reports for that to happen, as well as the Fed specifically saying that inflation IS a problem and not a possibility. Until then, we should keep looking at news coming from the financial sector, as well as new reports. Next week's important reports will be coming from Goldman Sachs , Bear Stearns and Morgan Stanley with an eye on possible disclosures related to their exposure to subprime mortgage-linked securities. But tech companies such as Oracle Corp., Palm Inc., and Research in Motion will also announce quarterly earnings.

In addition to these earnings reports, the week is stacked with economic reports. Trade well!


Real Time Trading Signals*for

Trade Date: 12/14/07

E-Mini S&P Trades*
(before fees and commissions):


9:19 ID VA BUy 1.75 = -1.50 all

9:42 ID VA Buy 91.75 = +.75, +3.75, +3.50

10:20 ID VA Buy 94.00 = +.75, b/e

1:10 ID VA Sell 87.75 = -1.75 all

1:38 OTF Sell 88.75 = +.75, +3.75, +2.50

E-Mini Russell Trades*
(before fees and commissions):

No ER trades Friday

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