These stocks will rally every so often, sharply and the breathless commentary will be *THIS* is the turn, the stock market is once again predicting the economy is back on track in 6 months. The same market predicting that in October 2007 (when it hit all time highs) and the same market predicting that in May 2008 (after a 7 week rally post Bear Stearns) There is no turn coming anytime soon. It's all about home prices and inflation. Again, we have MORE inflation coming this winter (in things we MUST have) even if natural gas goes to $6 and crude to $80.

Areas of strength from what I see? Costco (COST), Walmart (WMT) (although "dissapointing" versus expectation), BJ's Wholesale Club (BJ) <-->Big Lots (BIG), and that's about it outside of the specialty retailer names in the previous post. A few retail names with poor numbers are bouncing this morning because their "bad numbers" are "better than expected" but when you take into account inflation, and stimulus check - the numbers are just bad for those who people are trying to find a silver lining that is not there. Don't believe me? Here is what Mastercard (MA) had to say

• U.S. sales of clothes and shoes fell in July as cash-strapped consumers cut back spending further to pay for nondiscretionary purchases such as food and gasoline, MasterCard Advisors said in a report on Wednesday.
• Overall July apparel sales declined 0.8 percent from a year ago, with women's apparel sliding 3.3 percent, the eighth-straight month that sector fell
• "This is one of the weaker months I've seen in the last five years," said Michael McNamara, vice president of SpendingPulse, who said consumers are cutting back more on discretionary items since the U.S. government's tax rebate checks mostly cycled through the economy before July began.
• "We're continuing to see a divergence here in where the retail dollars are flowing," McNamara said. "They really seem to be flowing into the nondiscretionary areas like drugstores, food and gasoline, and it's really coming at the expense of some of these retailers such as apparel and electronics and appliances."

We called this scenario a year ago when everyone was telling us there would not even be a recession in America. Sadly, quite a few still cling to the "there is no recession" because the government reports say so. These people obviously do not mingle with normal middle class people and ask them the reality on the ground. As for the lower class? Just spend some time reading through what Walmart has been saying the past 4-5 months - literally they are seeing spikes of activity on Fridays (Paydays) as people spend immediately and then have to pray they get through the next week - big dropoffs the days before payday as people cannot stretch their dollar for the entire week anymore. But inflation is benign, contained, and nothing to worry about. So says the government reports. And we're also not in a recession. Yep. (Do the Bottom 80% of Americans Stand a Chance)

I'm still trying to find some thesis on what turns this ship (US economy) around - so I can get on the "US recovery is imminent" team... hard to find something prominent enough to hang one's hat on short of a huge bout of deflation to make things affordable again. And that would make the upper 0.5% very mad. So Uncle Ben will continue to print money at a mad pace to make sure he defends the upper 0.5%. And away we go... recovery in 6 months. "They" just won't tell which 6 months...

Long Mastercard in fund; no personal position