Forget the Financial Sector, Industrial Bellweathers are Now Being Hit!

April 11, 2008

Forget the financial sector, forget the rise in import prices. Wall Street’s problems are now stretching to industrial bellweathers like General Electric. For the first time in 5 years, GE reported its first quarterly drop in profit. Their Financial division was hit the hardest as the Bear Stearns debacle forced GE to write down its assets at very low values, resulting in a 42% increase in loss provisions.

Frontier Airlines also became the fourth airline to file for bankruptcy this month! The other 3 were Aloha, ATA and Skybus. Although Frontier credited their bankruptcy to “an unexpected attempt by its principal credit card processor to substantially increase a holdback of customer receipts,” rising fuel prices have played a big role in the failure of these 4 airlines. The problems are not unique to just US airlines. Oasis, HK’s discount airline was also forced to shut down yesterday. Late last year, all business carrier Maxjet filed for bankruptcy.

This proves that those economists who say core prices is the only thing that matters are wrong because prices INCLUDING food and energy is what is crippling the global economy.

Yesterday, the Wall Street Journal reported that prices are increasing everywhere:

“Kimberly-Clark Corp., maker of household goods, began raising prices in February between 4% and 7% for some paper products, including Huggies diapers, Cottonelle bath tissue and Viva paper towels. Hershey Foods Corp. raised the selling price of its chocolate bars 13% in February after boosting prices between 4% and 5% in April 2007. Hanesbrands Inc., which owns the Champion and Hanes apparel lines, has warned that sustained high cotton prices could filter through to retail prices.”

The Dollar’s slide is far from over. On Monday we have US retail sales and consumer spending will probably contract for another month. I am still calling for the EUR/USD to hit 1.60.

Posted in Inflation, GE, Fed Rate Cut, Forex News, Federal Reserve, US Dollar