Morning Musings

Just a few quick thoughts this AM:

• The world continues to be round (or pointed or something). Recent books announcing the world is flat look less and less relevant by the day. Not only is the US still able to borrow at ridiculously low rates, others in the emerging markets continue to risk default. The dollar continues in an uptrend although it is down today. The dollar is still king. If we didn't have a flight to quality I think it would be substantially lower due to a ridiculous and absurd trade deficit.
  
• The CPI numbers out this morning were pretty ugly. The 1% drop was the largest drop in history but Trichet (ECB) is still worried about inflation. Because of some contract expiration Friday AM would be a great time to do a big rate cut. From a market intervention standpoint that's when you get the biggest bang for your buck.
  
• I am surprised oil is still this high--it's having trouble getting down below 50.
  
• Waiting until February/March for some big fiscal packages is a huge economic mistake. From a macro standpoint the delay causes all sorts of unintended consequences and in many ways pushes the economic crisis out. You need a package this week that's of sufficient size that it leaves reasonable doubt that there may not need to be one with the new administration. I'd lay odds we are not going to get that. That leaves actions by the Fed and others as the only real backstop and the Fed is out of bullets.
  
• The GOP is kidding itself if it thinks there is not going to be some kind of auto bailout. One or more will be running out of cash any month now and the economy is so unusually bad it can't be allowed to fail. I wish I had a way to short Cerberus. By the way, it's unlikely we will ever get the money back unless it's done in conjunction with a pre packaged bankruptcy.
  
• Lots of rumors on a big Russian devaluation and 20% of the world's currency reserves being drained trying to defend the ruble. Medvedev is coming out with a big softening in tone towards the United States. A combination of oil dropping and Bush leaving office is changing the political calculus there. Plus they might need a loan again at this rate.
• Although there is almost no evidence to support this--I would not be surprised to see a surprise rate cut from the ECB perhaps in unison with other central banks. Again, Friday morning would be a good time.
  
• Deflation is much more formidable enemy then inflation and it needs to be fought even harder. People are gonna think of the inflationary days of yesteryear and see them as the good old days.
• Housing starts were abysmally low this AM. They are finally starting to come down. What I don't get is why these guys were building houses a year ago. Only recently are these guys slowing production of new houses and cutting capacity. Too bad they didn't do this last January and a lot of price depreciation might have been avoided. Better late than never.