The PPI report will undoubtedly rekindle the inflation-versus-recession debate (with more than a few comments about stagflation thrown in for good measure).

While the wholesale inflation gauge (PPI) provides another look into how escalating food and energy prices are impacting the economy, the most recent moves in oil and gas may not be factored in for another month or two.

On an optimistic note, gasoline prices historically peak around Memorial Day and then fall throughout the remainder of the summer. As we’ve said here a number of times before, don’t expect that pattern to repeat itself this year [Indeed, please click here to check out a related story in this issue of Money Morning that details our expectation that oil-and-gasoline prices are headed even higher].

In this column four weeks ago, we told you to ignore a U.S. Energy Department forecast that gasoline prices at the pump would reach $3.73 a gallon before falling. In fact, I said flat out that the Energy Department was wrong. And Money Morning Investment Director Keith Fitz-Gerald shortly thereafter reiterated that belief that the Energy Department’s prediction was way off the beam. And how right we were – that price already has been surpassed and consumers in some parts of California and Hawaii are paying in excess of $4.00 a gallon.

Less than two weeks ago we actually boosted our target price for oil to $225 a barrel (remember that Keith Fitz-Gerald, now Money Morning’s investment director, was probably the first investment guru to predict triple-digit oil prices).

As noted, however, much of this won’t be reflected for a couple of weeks.

Wednesday’s release of the minutes from the last Fed meeting should provide investors with a bit more insight into the mindsets of central bank policymakers and just how likely they will be to stand pat on interest rates: In one of the most aggressive rate-cutting campaigns in the central bank’s history, policymakers have pared the benchmark Federal Funds rate seven times since mid-September. Investors expect the Fed to sit tight (and hold off on further rate activity) at least through the summer months.

More retailers will report this week [Target Corp. (TGT), The Home Depot Inc. (HD) but few surprise are expected at this point in an earnings cycle that – except for the discounters – has been full of disappointing retail-sales reports.

The Money Morning Story SNAFU

When they received their daily e-letter last Monday, sharp-eyed Money Morning readers noticed something peculiar about this column.

It seemed familiar.

There’s a very good reason they felt that way. They were right.

Due to a technical problem, and some human error, the column we’d put together for Monday’s newsletter was inadvertently replaced by the afore-mentioned April 14 story in which we’d told you that the Energy Department’s optimism about summer gasoline prices was wrong.

We replaced that story on the Web site with the correct piece – a warning about the week’s upcoming retail-sales reports, but we heard about the mistake. As we deserved to.

As bad as we felt about the mistake, we still found several positives. First and foremost, we were reminded yet again that we have a loyal following that reads our work closely and carefully – and for the most part enjoys and benefits from what we do.

And if you all had to read one of our “old” stories a second time, I’m happy to say that it was a strongly worded prediction piece that proved us correct.

Market Matters

Over that past year-plus, the subprime debacle and related credit crisis have prompted discussions about “disaster,” “devastation,” “tragedy,” and “catastrophe.” Homeowners were unable to afford their houses, institutions faced significant asset write-downs, hard-working folks lost jobs, and investors watched portfolio values decline. While these financial consequences undoubtedly have been traumatic for many, the events of the past two weeks can serve to lend some perspective. The death toll in Myanmar has reached about 80,000 with another 50,000 people still missing. Likewise, in China, where the earthquake eventually may take over 50,000 lives as well. Somehow, missing quarterly earnings by a few cents simply does not seem quite as significant.

Speaking of…earnings season plugged along and the results to date have given some analysts (the slightest) reason for optimism. As the week began, about 90% of Standard & Poor’s 500 Index companies had reported and 62% actually beat expectations. While average quarterly earnings have plummeted by over 17% on a consolidated basis, the results looked far stronger once the financial firms were removed from the equation.

Without that struggling sector, first-quarter profits actually increased by more than 7%. Retailers took center stage this week as Wal-Mart Stores Inc. (WMT) proved again that discounters are benefiting from the current consumer nervousness. However, while Macy’s Inc. (M) and JC Penney Co. Inc. (JCP) suffered from weak sales, their results (and guidance) bested Street projections. Sony Corp. (ADR: SNE) rebounded as TVs and cameras moved back onto consumer shopping lists. Bond insurers MBIA Inc. (MBI) and Freddie Mac (FRE) reported wider losses, while UK-based HBSC Holdings PLC (ADR: HBC) realized higher profits.

Board directors and corporate execs again played “Let’s Make a Deal” as CBS Corp. (CBS) announced its intent to buy CNET Networks Inc. (CNET); Hewlett-Packard Co. (HPQ) made overtures toward Electronic Data Systems Corp. (EDS); General Electric Co. (GE) is reportedly putting its long-time appliance biz up for auction; and billionaire stakeholder Carl Icahn pushed for Yahoo! Inc. (YHOO) management to reopen talks with Microsoft Corp. (MSFT). Analysts often welcome merger news and consider it a positive sign of a rebounding business climate. Research in Motion Ltd. (RIMM) shares soared this week on news that its newest Blackberry creation will soon hit the market; and Merck & Co. Inc. (MRK) received a major victory when a Texas appeals court overturned a Vioxx verdict that, initially, awarded $32 million in damages.

Goldman Sachs Group Inc. (GS) apparently enjoyed the limelight (and the stir its analysts caused) two weeks ago. Last week, the investment bank was at it again, forecasting that crude prices will rise to $141 a barrel during the second half of 2008. Oil surged to about $128 a barrel late last week as gasoline prices soared to over $3.75 a gallon – just a week before the widely-traveled Memorial Day weekend.

• China’s central government said yesterday (Thursday) that this week’s earthquake in Sichuan ultimately could result in 50,000 deaths, and catastrophe-modeling firms are estimating the disaster will trigger losses of up to $20 billion, MarketWatch.com reported. Monday’s quake – which measured 7.9 in magnitude – is throwing a “harsh spotlight” on the widening gap between the rich and poor in China, particularly since the losses incurred by the country’s lower-wage classes were mostly not covered by insurance, The Wall Street Journal reported.

• The number of U.S. workers filing for initial jobless benefits increased slightly more than expected in the week ended May 10, the Department of Labor said yesterday (Thursday). First-time jobless claims rose to 371,000, up from 365,000 for the week prior. Economists surveyed by Reuters had forecast the number of new claims at 370,000. The four-week moving average of new claims, considered by economists a more reliable gauge of labor trends, fell to 365,750 in the week ended May 10.

• CBS Corp. (CBS) announced yesterday (Thursday) that it would pay $1.8 billion to acquire CNet Networks Inc. (CNET) in a move expected to help CBS establish a foothold in new advertising markets while also helping with its effort to gain a higher profile on the Internet. CBS will pay $11.50 a share for the online provider of technology news and product reviews, a 45% premium to the price CNet traded at prior to the deal’s announcement, MarketWatch reported.

• General Motors Corp. (GM) yesterday (Thursday) reached a tentative deal with striking workers at a plant in Delta Township, Mich., in what might be the first step towards ending a month-long walkout. However, the strike at the Delta Township factory won’t end until the tentative agreement is ratified, Dow Jones Newswire reported.

• At a conference on bank structure and competition in Chicago, U.S. Federal Reserve Chairman Ben S. Bernanke told banks to hold “generous” capital cushions and actively raise money. “I strongly urge financial institutions to remain proactive in their capital-raising efforts,” Bernanke said. The Fed chair added that he has been encouraged by the success of many banks in raising new capital and he praised foreign-owned sovereign wealth funds for the positive role they were playing as suppliers of badly needed capital.

• U.S. industrial output fell by 0.7% in April from the month before, when output was up 0.2%, the Federal Reserve said. The latest drop was twice that forecast by analysts. The automotive sector saw its biggest drop in nearly a decade as consumer demand for new cars slowed, and a strike at General Motors cut output.

• First-quarter profit for J.C. Penney Co., Inc. (JCP) dropped 50% from last year, but beat Wall Street expectations, causing the department store operator’s shares to rise more than 4% yesterday (Thursday). “I think it’s good news in the sense that things have stabilized. It doesn’t appear to be getting worse,” Wayne Hood, a retail analyst with BMO Capital Markets, told Reuters.

• A multibillion-dollar housing rescue package is close to being resolved, two members of the U.S. Senate Banking Committee said yesterday (Thursday). “We’re very, very close,” Panel chairman Sen. Chris Dodd (D-Conn.) told CNBC. “There’s really maybe one or two issues – maybe only one that’s outstanding here that we need to resolve.”

Source: Global Investing Roundups: Friday, May 16th, 2008