Last updated: 3:49 am
July 15, 2008
Posted: 3:32 am
July 15, 2008
AS if it didn't have enough to worry about, Wall Street tomorrow will have to deal with the latest consumer inflation report. And it might not be pretty.
Back in May, I had an exclusive interview with Pat Jackman, the senior government economist who puts together the consumer price index.
Jackman warned that the CPI during this past spring had been understating energy inflation because of statistical anomalies caused by seasonal adjustments.
And he warned that these statistical quirks would be reversed - starting in June. That's the figure that will be announced on Wednesday.
"We are going to show huge increases," Jackman told me.
Wall Street is expecting the CPI to show a monthly gain of 0.7 percent, compared with the 0.6 percent increase in the May numbers that were announced last month.
If the unwinding of that spring seasonal adjustment makes consumer inflation look a lot worse than investors expect, the already shaky stock and bond markets could be in for a rough ride.
In an Aug. 30, 2001 column, I warned about the looming crisis in the government-backed mortgage business,
"You gotta hate Fannie Mae in this sort of economy.
Stock of the packager of mortgages is still near its high even though the high-risk borrowers to whom this quasi-government organization caters are having increasing trouble paying their bills.
This stock should not be as high as it is, even if the company keeps assuring Wall Street that its earnings will remain good."
Seven years is a long time. But back then, the issue of whether the so-called government-sponsored enterprises, and especially Fannie Mae, were getting themselves in over their - and the country's - heads was basically ignored by the bubble-blowers.
Now, the risks seem quite obvious. Too obvious to have been missed.
Fannie Mae's stock, along with that of Freddie Mac, tanked last week thanks to concerns that these mortgage packagers will soon need a federal bailout. Over the weekend, Washington offered some guarantees.
Here's the problem that a bailout causes: If Washington has to assume trillions in debt now being carried by Fannie and Freddie, it will start paying more to borrow money.
And if money becomes more expensive, people will have a harder time paying off their credit cards (See related Crudele column on page 8). Worse, they will have a harder time purchasing a home and the housing crisis will deepen.
You've heard about how ridiculous airfares have gotten.
