Stagflation?

The Philly Fed report was just released and is horrendous falling to 2.2 from 17.5. The internals of the report are what make it even worse. New Orders in September came in at a dismal -0.5% versus last month's 19.8%. To add insult to injury, prices paid had almost doubled. At first glance there was no mention of Katrina impact in the report.

Essentially this report, which many consider to be a good proxy of the overall economy, showed rapidly deteriorating growth and accelerating inflation. You might as well put a knife into the economy's belly and twist it. Mind you, this is only one report, but a couple more like this one in the near-term would definitely cause tremendous fear in the financial markets.

We believe that the new downtrend the market is currently experiencing is slowly creating a "good news is bad news, and bad news is worse news" environment. Therefore, we would not expect any contrarian pop in the stock market from this bad news to last more than a few hours.

Your friendly neighborhood Kcap Team is a bizarre bunch of individuals. This is the type of news that we have been hoping for. Why you ask? Simply put, we believe the coming product cycle with major technology companies will be the new catalyst to reinvigorate the economy. An economic soft patch that delivers attractive stock prices is a wonderful gift in front of the expected new technologically driven economy that we are forecasting. We are not there yet, but the moons are aligning.

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