My 1st Million At 33 – yes, you can do it too

The trading volume for today and tomorrow before the fed meeting should be light just like yesterday. Market participants tend not to bet big before the resolution of the federal reserve meeting.

Obviously, I don’t expect Fed will raise interest rate in this meeting to “combat inflation” as if that’s really their goal. In fact, I doubt that they will raise interest rate in August either. Fed is in a bind between “combating inflation” and reducing the impact from the burst of housing bubble. Unfortunately, I really can’t see what good news Fed can bring to this market. From the recent past talks, markets simply go down further every time a Fed governor opens their mouth. In fact, to be a Fed governor, you really have to be good in talking. How else are you going to talk down the inflationary expectation, while everyone on the main street is getting used to all the fuel surcharges in all kinds of services including pizza deliveries? Therefore, I’m guessing that the main message from Fed this year will be
1. Slowdown will temper down inflation.
2. If (and only if) crude oil stops going higher, the year-to-year inflation contribution from crude will no longer contribute to the overall CPI. (Yes, if crude stays at $130 from today to next June, there is no inflation, or price increase.)

Unfortunately, in the coming year(s), there will be a lot more of cost pass-through from basic materials all the way to the end consumers, since businesses are realizing that high prices of crude oil are here to stay. The cost-push inflation will be taking the rein of the economy. At that time, I’m guessing that the main message from Fed next year could be arguing the pass-through of PPI to CPI will “soon be over” and “not expected”.

As I have argued 2 years ago before the burst of housing bubble, inflation would be almost for sure be heightened for the next decade to come, in order to alleviate a dramatic fall in the inflation-adjusted housing price to a much less price adjustment in the nominal housing prices. The primary goal or the hidden agenda from Fed will certainly be creating lots of inflation, especially the most needed wage inflation (to support housing markets). However, wage inflation is very hard to come by in the globalized economy without lowering US dollar in the process. Poor Bernanke really has got the hardest landing job ever in the US history. He will need to do a lot of double talks, losing his credibility all the way until he gets replaced eventually.

I hope that the markets or PPT (Plunge Protection Team) will do a dead cat bounce again. I have not hedged my long bets enough at all. Earning season is just right around the corner in another month. I’m expecting more dreadful writedowns from financial companies and more economic slowdown from all the companies. Better get out of the way before all the bad news come crushing the markets down.