General Slop

G.M. may be making a Mistake with its current Policy, though I do understand their basic Problem. The Hummer division has a military underpinning, therefore potential solid Sales throughout the World; it could be made Cost-competitive for those Customers who absolutely must have both great durability and Over-the-Road capacity. The Tahoe could be converted into the small Bus vehicles which will be needed in the future; rural School districts would find them much cheaper, and safer, than the traditional School bus, which consume too much fuel and are far in excess of needed Capacity. My estimate is that G.M. will be closing Plant capacity which they will later need, because the Markets are still there; who themselves need a cheaper Operation Cost, and G.M. could currently provide sufficient Capacity at half the Vehicle Cost at greater fuel economy.

The ISM numbers say the Economy is contracting, but the real Translation states the only real loss is in Autos and commercial aircraft. I would hazard that We would have a 1% gain in Durable Goods, if these two areas were adequately removed, pushing actual Total Demand to over 2%. Do I believe that We can hold here? No! Systemic factors will contract the economy, with higher fuel costs, lower Home prices, and Baby-Boomers starting to Retire. The Question becomes whether a natural Contraction will cause the same difficulty as previous eras. The Answer is still No! The real fear for the Economy comes in the switch of Household Income to Energy and Food; a permanent shift indeed posing a Problem.

Ben Bernanke is again out to create mischief, though I am glad that he did; it at least put a floor under the policy-dominated Fed position. I wish he had not come out and said that Fed rates are in a good place, because they most decidedly are not. Ben must be as willing to raise rates as quickly as he dropped them, else We are in trouble. The Fed rates will have to come up rapidly by mid-Summer, else We will have a gushing Economy with worthless, dropping capitalization; the exact medium for Inflation culture growth. Maybe next Month’s numbers will propel the Fed Board to a necessary 100 base point Increase. Remember that I still advocate a 4.2% Fed funds rate which does not alter. lgl