Richard Bove, the outspoken analyst of Rochdale Research, issued a short note yesterday, titled, "The Government's Not So Invisible Hand." Bove paints a gloomy picture for the U.S. economy, essentially saying we're on a road to high inflation.
"The dollar weakened," Bove wrote. "The euro moved above its 200 day moving average. The yen rose to close to 95 against the dollar. Continued weakness in the dollar implies higher interest rates, a return to an inflationary environment and an inability of the government to fund its debt with foreign investment. These in turn imply a plunge in the economy in line with the government's suggested outlook for the banks." (Bove says the government implied --- via its stress test and forced capital raise for banks ---that the economy is in worse shape than investors believe.)
Then he went on: "In sum, a fear has been created that the government will intervene in the private markets to stop the generation of profit. Beyond this, in the auto company negotiations, the government has shown a complete unwillingness to respect the rights of private property. This, of course, is a direct attack on free markets. We are experimenting with a new form of government and private market interaction and the markets feer its consequences."
For an interesting account of the ravages of inflation, pick up The Great Inflation and Its Aftermath by Rober Samuelson, the Newsweek and Washington Post columnist. He shows how inflation stunted living standards, threatened savings and "caused the stock market to stagnate." The Dow was "no higher in 1982 than in 1965," he writes.