The US Economy - Speed Bumps and Corn Fields

As far as financial main stream websites go, Bloomberg wins the prize for keeping it real:

"The U.S. economy's take-off from a near standstill in the first quarter may prove bumpier than the Federal Reserve and many on Wall Street expect as tighter credit acts as a headwind to growth."

"...economists at International Strategy & Investment Group, UBS AG and Commerzbank AG see growth below 2 percent as consumer spending slows and business investment fails to pick up under the weight of tougher financing conditions."

"So far, economists with a gloomy outlook are in the minority. If they are correct, stock-market investors are in for a disappointment."

Remember that all-important investing rule-of-thumb: Don't follow the herd? Investing against the grain takes courage and discipline, but it gets easier when the facts are staring you in the face. For example, the FED recently reported that consumer credit (ie: credit cards, auto loans, etc.) increased at an annual rate of 6.4 percent in the month of May. From Yahoo:

"Consumer borrowing posted a hefty increase in May, reflecting the biggest jump in credit card debt in six months. The Federal Reserve reported Monday that consumer credit rose at an annual rate of 6.4 percent in May, far above the small 1.1 percent gain of April."

The cash in the home ATM has been running out. Thus, consumers are substituting credit cards to feed their materialistic urges. Or perhaps it's food itself. The cost of eating has been growing in a subtle way. Higher prices in meats and dairy seem to be gradual enough for us not to get alarmed. Perhaps no more. This, from the Bureau of Labor Statistics:

"Through the first five months of 2007, beef prices have risen 5.1 percent, poultry prices, 4.3 percent, and pork prices, 3.4 percent. The index for fruits and vegetables, which rose 0.4 percent in April, declined 0.5 percent in May. (Prior to seasonal adjustment, prices for fruits and vegetables rose 1.0 percent.) The indexes for fresh vegetables and for processed fruits and vegetables declined 1.8 and 0.3 percent, respectively, while the index for fresh fruits increased 0.7 percent. The index for dairy products increase 0.5 percent as a 2.2 percent increase in milk prices more than offset a 0.4 percent decline in prices for cheese."

Through the first five months of the year, we've seen a dramatic increase in the cost of meat and milk, two staples of most American meals. And there's no indication that this trend will reverse. When populations are forced to spend more for items of necessity, they either: (a) borrow more, or (b) consume less. Eventually, the 'borrow more' option dries up as credit lines are maxed out, forcing consumers to 'consume less'. And when that happens, earnings (and Wall Street) will take a hit. For the last eight to ten years, our economy has been driven by credit expansion. It cannot, nor will not, continue in perpetuity.