As goes New York, so goes the nation.

That motto may seem like typical NYC bluster. But, whether the rest of the country likes it or not, both Wall Street and Washington place enormous confidence in the predictive powers of the Federal Reserve Bank of New York's Empire State Manufacturing Survey.

Unfortunately for Wall Street bulls, this week's report is bleeding red ink.

To give you some highlights, manufacturing activity is deteriorating; general business conditions are falling; new orders, shipments, and unfulfilled orders were negative (and lower than May levels); employment indexes hovered around zero and in every broad category of spending, respondents indicated a cutback.

And those are just highlights!

This report places Fed Chairman Ben Bernanke in an incredible bind. You see, the principle drag on the economy right now is high raw material and energy costs. Those high costs are feeding inflation.

But the Fed's only tool to control this inflation (besides impotent jawboning) is a series of rate increases that would stymie any hope of jumpstarting the U.S. economy.

In all probability, Bernanke will do nothing prior to the end of President Bush's term. At the January 2009 FOMC meeting, a new president may very well ask a new Fed chairman to bite the bullet and rescue what's left of the dollar.

My advice? What made money in spring 2008 will do even better in summer 2008. Sell financials like Bank of New York Mellon (BK:NYSE) and go long energy and commodity players like Monsanto (MON:NYSE) and ConocoPhillips (COP:NYSE).

Adam Lass
Senior Editor, WaveStrength Options Weekly

 

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