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This morning’s ISM Non-Manufacturing report delivers yet another blow to narrative fallacy of those forecasting a 2010 “double-dip” and the Fed remaining perpetually at zero.

In the chart below, depending whether you are a Washington fear-mongerer or not, you may (or may not) be surprised to note that this February ISM report was the best for the non-manufacturing side of the US economy since October of 2007.  At 53, this was also a big +250 basis point higher, sequentially, than the January’s reading of 50.5.

Now, we understand (but do not respect) that He Who Sees No Real-Time Data (Bernanke) may be willfully blind to this chart, GDP running +5.9%, and inflation running +3-5% year-over-year on his own conflicted CPI and PPI calculations… but that certainly doesn’t mean these economic facts cease to exist.

Last night, Kansas City Fed head, Thomas Hoenig joined fed hawk Charles Plosser in stating plainly that the Federal Reserve probably shouldn’t maintain language of “exceptionally low rates for an extended period of time” because, I assume, they see this economic data for what it is. Keeping interest rates at zero is now inflationary.

I’m personally rather annoyed to be underwriting the widest Piggy Banker Spread ever (the spread between short and long term rates is +282 bps today). Ever, by all mathematical counts, is a long time. The US government has chosen to pay levered up American lenders rather than disciplined savers.

Unfortunately I can now only hope that I get a rate of return on my hard earned American savings that’s more reflective of the economic data that’s on the tape. Hope, alas, is not an investment process. Neither is depending on Greenspan or Bernanke groupthink oriented forecasts.


Keith R. McCullough
Chief Executive Officer

He Who Sees No ISM? - ism