I am a bit bemused by the government Consumer Price Index (CPI) and everyone screaming their is no inflation in the economy.

Anyone who has bought a house, went grocery shopping, went to the hospital without health insurance, sent a kid to college, bought gas, or paid for heat or A/C for their house in the past year would claim otherwise. Hence this CPI ex-food energy measure always struck me as strange because in a person’s weekly budget those are probably the 2 largest expenditures, and in a monthly budget ex-mortgage, those are the 2 largest expenditures. So if one can live without food or energy, ok I will say inflation is generally benign ….

In my research of Smithfield Foods, I was reading some of the Tyson Foods earnings report and picked up this nugget in a Forbes article:
“The world’s largest meat producer has been hurt by increased prices for chicken, beef, and pork, which are a result of escalating feed and fuel costs.

But Tyson was able to diffuse cost pressures during the quarter by passing them along to consumers. It hiked chicken prices by 18.8% from a year ago, beef by 13.0%, and pork by 6.1%. That depressed the amount of meat the company sold but helped it boost margins.”

Similar stories in the Hormel report, and the chicken producers. Now, we are not talking 4-6% inflation; this is serious stuff and from first hand experience going grocery shopping you can see this on a weekly basis. Apparently the government does not go grocery shopping.

So when the talking heads criticize Big Ben and his merry band of Fed governors, perhaps they are only looking at the aggregate government statistics ex-things we BUY EVERY day. This will be a very interesting meeting – if the neutral bias is maintained (risk between inflation is offset by drag on growth) but no Fed cut, then what? Market could fall, and hard…. I think each point of this rally prices in more and more of an easing. Hence, will even a cut really move the market up further since everyone expects it? My gut says the Fed will want to hold off cutting rates except for true dire emergency; I am not sure that very rich people making stupid decisions and now hiding in bunkers since they are afraid to see their credit shadows, qualifies.

Again, an interesting meeting Sept 18th.

Last 5 posts by Trader Mark

• Weekly Mortgage Applications Of Interest Today; Fed Already Loses $5 Billion on Mortgages - June 3rd, 2009
• CBSMarketwatch: Can Sequenom (SQNM) Make it Back into Investors's Good Graces? - June 2nd, 2009
• Jim Rogers Agrees with Marc Faber - May 20th, 2009
• Update on my American Idol Trade - May 13th, 2009
• HAL9000 Friends Did Not Enjoy the Rally; Hedge Fund Performance 4.2% YTD - May 12th, 2009