The power of III

Summum ius summa iniuria--More law, less justice

14 June 2011


You've heard of inflation and you've probably heard of stagflation but what about screwflation?

CNBC Contributor Doug Kass from Seabreeze Partners thinks it’s something you should learn about -- and quick.

So – what is it?

It’s a term coined by Kass that refers to the phenomenon in which the average Joe and Jane gets stuck in the middle - to put it nicely - as prices increase rapidly, especially the prices of food and energy.

Not only do they become unable to save, but they have a tough time just making ends meet. As a result, they’re forced to change their spending habits – either trading down or doing without.

It's not a new trend but it is becoming so serious that Kass thinks it poses a serious threat to sustainable recovery.

In this phenomenon, ”Sales reverse and go lower,” Kass says, “which in turn threatens the economic recovery, which in turn threatens gains in the stock market, which in turn threatens consumer confidence. As a result sales go lower…”

In other words it's a downward spiral. And he thinks the market doesn’t understand the impact – not in the least.

In fact he compares the level of comprehension in the market to that of subprime around 2006 – before it completely derailed stock investors.

And getting the spiral to unwind will be no easy feat. "We'll need a definitive and focused jobs policy and we'll need a Marshall plan for housing. Housing got us into the soup and its got to take us out of the soup," he says.
And that begs the question -- how should you position?

”The average investor should err on the side of conservatism and have above average cash reserves in anticipation of a turn down in retail sales and personal consumption expenditures,” Kass says. “I think the best way to play it is to short the consumer stocks.”

verbatim post, link here.



And Bernanke et al didn't even buy us dinner and give us a kiss...what a gyp.

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