Uncle Ben won't be killing inflation by "words" (which CNBC will get in a froth about next week when "strong language" that shows "the Federal Reserve is serious about fighting inflation" comes in the statement - that is so laughable but it will be told to you) And unless producers can pass it all along to consumers - they will be eating a lot of it and their profit margins will be hampered. This was plainly obvious to anyone who does not use government inflation reports... but since almost all of Wall Street clings to those as "truth", as these earnings reports begin to trickle out this quarter and next showcasing inflation is actually a real thing, and earnings are being crunched, stocks will react like wise. And it will make the typical mine field of earnings season that much worse since expectations are so unrealistic. Again folks, I cannot stress what a crime "2nd half" earnings estimates are - as a whole analysts say fourth quarter 2008 is going to grow 60% year over year, over fourth quarter 2007. Second half recovery and all.

Did I mention the whole housing debacle? And credit market debacle? I know, I know - that's all in the past - look forward young man, it will all be fixed in the grandeur of the 2nd half recovery.... Royal Bank of Scotland seems to disagree....

• The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. "A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.
• A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets. Such a slide on world bourses would amount to one of the worst bear markets over the last century.
• "Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.
• "Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said.
• US Federal Reserve and the European Central Bank both face a Hobson's choice as workers start to lose their jobs in earnest and lenders cut off credit. The authorities cannot respond with easy money because oil and food costs continue to push headline inflation to levels that are unsettling the markets. (oh yes they can, in fact they HAVE in the United States of Subprime - so please don't put the Fed in the same sentence with the ECB who have approached this issue from completely different angles)
  
• "The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said.