Contingencies: A Churning Market

World stock exchanges are down. Oil is down. Dollar still enervated. Fannie and Freddie being taken into federal conservatorship. Interest rates low, but little interest in buying houses -- not that it would matter, banks are so skittish about handing out loans.

What scares me the most is the wholesale inflation rate (PPI), which is up double digits from a year ago. Oil and other commodities are likely driving this, since labor unions have not had the clout to lock in wage increases to match inflation. Wholesale inflation can be weathered as long as consumers spend enough money on enough junk to keep the junk makers' cash flow going. But, consumer confidence and spending are down -- and crushing loads of consumer debt has now scared people off of using leverage for personal consumption.

So, if production prices keep increasing, this will inevitably lead to greater inflation (CPI) as producers pass on the cost to the purchasers. Again, if people are willing to spend, the inflation increase will be a bump in the road while the market works towards equilibrium. If people decide instead to pay down debt or bury their cash in the backyard (afraid of losing it in a failing bank or plummeting equity markets), then we have lowered demand. The fallout from that will either be bankruptcies or corrections in the price of goods. Pretty ugly -- unless the commodity bubble bursts. (Of course, lowered demand means greater inventories, which is factored as a plus in the GDP. Nice.)

Oh, yeah, and if the commodity bubble bursts, farmers everywhere will be in financial ruin. They can line up with foreclosed house flippers at the Capitol, looking for a solution or a bailout.

That's just how the market looks today. It was different two weeks ago, and it will be different in another two weeks (especially if the federal bailout of the GSEs works to stabilize the debt market). It's puzzling. Investors better have a pair of shot puts in their jockstraps. Or beer, more beer. Oh, speaking of beer, I can save Starbucks. Listen Howard, instead of flavor shots, you need to offer whiskey shots. Trust me.

It's a lot of churn. There are certain fundamentals, worldwide, that seem to say that the global economy is strong. Markets are increasingly de-centralized. Mergers and acquisitions are surprisingly robust. Hedge funds and sovereign wealth funds (both holders of enormous amounts of preferred stock) are becoming both more accepted and more transparent. Revolution has gone the way of parachute pants and white guys with mustaches. Only Argentina has had an Argentina-style meltdown of late.

Yet, at the same time, no one knows the proper value of anything. Despite the tsunami of cash that crashed upon the markets during the Greenspan era, money is locked up like European wives during the Crusades. Geopolitics reminds some (including me -- and I've been saying it for about six years now) of the buildup to World War I. There is a looming demographic bomb in the West and parts of East Asia. There is a flip side to the retirement bomb in the Near East and North Africa, with a lot of young people looking for work and a means to build meaningful lives in regressive national economies with repressive national governments.

Two weeks. A pay period. What will my money be worth?