Wall Mart as an inflation indicator

Last week Wall Mart announced that they were cutting price on 10,000 items!  To give you a sense of what this means, the CPI is calculated on less then 6,000 items!  Also last week the FOMC released its March 16, 2010 minutes.  Not much has changed from the previous meeting, but one thing has, inflation expectations were revised downward.  Those who have been looking for inflation were disappointed AGAIN! 

But then on the face of a contraction of the M2 by $11.7 billion and the MZM by $5.2 billion the M2 is contracting at a rate of 2% per annum, while the MXM is contacting by 7.2%.  The Feds have allowed the monetary base to shrink (a first), so while rates are low, the abundance of money supply is beginning to recede.  Finally bank credit continues to shrink by $13.2 billion, or 8% per annum – another record, banks instead are playing the yield curve, borrowing short term money from the government and lending it back at a much more attractive rate.   

          Teranet - National Bank of Canada 

          National House Price Index

Ok so that’s the US, up here in Canada inflation seems to be stronger – housing for one is up rather dramatically, in fact Canada is one of two OECD countries that has not yet had a housing recession (the other being Australia).  Some are pushing the inflation diffusion index, where producers are looking to increase the price of their goods – good luck with that, with dollar parity, it will be easy for Canadian to compare prices in the U.S. 

Producers will soon discover that there is a big difference between wanting to increase prices and being able to increase prices!  Most Canadian live within 160 km of the U.S. border and the penetration of the internet is very high.  Already vehicle dealers are getting nervous (cars in Canada are 20-30% more expensive than south of the border). 

Finally this morning from David Rosenberg of Gluskin Sheff: 

THE PROFIT PICTURE — THE REAL STORY

Total U.S. corporate profits rose 30.6% YoY in Q4, a huge swing from the -25.1% trend a year ago. Almost the entire story is in the financial sector where profits have soared 240%, which is unprecedented. With the banks shrinking their asset base, the surge in earnings has been due to the ability to ‘extend and pretend’ post the FASB 157 changes a year ago and the ability to play a super steep yield curve. Financial sector profits have accounted for 85% of the overall increase in corporate earnings. Total non-financial earnings are up the grand total of 5.2% on a YoY basis, though this is still much better than the -17.9% pace a year ago.

ON GREECE:

I really enjoyed the $60 billion "bailout" for the EU & IMF for Greece, once again it's less than meets the eye!  Any drawing under the new facilities will require unanimous approval of all members (Angela still has wiggle room after all).   As was discussed this morning on several blogs that money helps Greece's liquidity but does nothing to solve the problem of solvency!