Smoke & Mirrors

March brought us plenty to think about: The disaster in Japan, Arab protests, creeping inflation, to mention a few. However, the immediate concern for both the US and Global economies is clearly high oil prices which threaten the tepid economic expansion; especially if these high prices continue into Spring. On Thursday, oil rose to just below its highest level all year. The increase in prices, propelled by the Arab Democracy movement are being further energized by positive economic news here at home as we have seen GDP growth for 6 consecutive quarters through Q4 2010 coupled with expansion in the manufacturing sector, and the prospects of a double dip recession become less likely. In addition, the unemployment figures released by the Labor Department show that private sector hiring is on the rise. That said, the American economic system still has plenty of issues to deal with. Notwithstanding, the positive jobs number, unemployment and underemployment remains high and weekly unemployment claims are still above 350,000. An extraordinary number of foreclosures has kept real estate in a market depression, state and local governments are bankrupt and the federal government seems to be incapable of overcoming their spending addiction. As there seems to be no end to the deficit spending, the national debt will continue to rise endlessly as well. The Federal Reserve’s answer to the spending is quantitative easing which has not succeeded in doing anything but monetizing and devaluing our currency and creating somewhat unrealistic expectations on inflation. These expectations have resulted in a favorable stock market performance. It’s all smoke and mirrors and there needs to be an inevitable comeuppance. The market is expecting 3% GDP growth and no more than 2% inflation. Anything less will be viewed as a stalling of the economic expansion and have an adverse effect on the market