For January, the total PPI growth rate was +0.3 pct, and ex-energy and food items PPI was up on the month +0.4 pct. That is a core rate that is growing over +5.0 pct Year over Year, which is very high.

As you know, producer prices soon become consumer costs. The CPI figures for January will be published next Wed.

What will open your eyes I think is to draw a line from 4Q02 to today for the PPI Y/Y chart data. As you know, 4Q02 was the equity market cycle bottom.

Back then PPI was growing at a Y/Y rate of about 1.5 pct, but given that the economy was starting to pick up after a recession, the PPI was growing quickly. There was no problem in economic terms in the early quarters, however, and interest rates were kept low by the Fed to facilitate economic renewal.

But today is quite diferent. If you draw that trendline for PPI, you will see it is up to about +5.75 pct in Y/Y terms. That is a remarkable move.

Until that trend line turns south, interest rates at the short end will continue to be pushed higher by the Fed. That situation further inverts the Treasury yield curve, which further pressures the economy to slow down.

I agree that it's possible that the Fed will raise rates one or two more times, but let's look at the drivers, which are the commodity price trends (i.e., energy, food and metals). Periodically these may pull back, but the move is always a temporary phenomenon in a rising inflation environment. Already, after pull-backs in oil and gold, for example, the prices are rising again.

That means the PPI and CPI will continue north. And that means Corporate America, under shareholder pressure to grow, and out-perform, will continue to outsource jobs. That means good jobs will be sent to China and India. It also means that the USD will weaken.

Moreover it means that, like the auto industry today going into bankruptcy court to cause previous employer-employee agreements to be broken, the retirement plans of older people are going to be negatively affected.

Treasury Secretary John Snow (the "snow" man), and his boss, Pres. Bush, can pooh-pooh the polls all they want, but the truth is that Americans are getting more sophisticated to what is happening to their country and they don't like the direction it is heading.

And people like CNN's Lou Dobbs are hammering that point home. An eye opener was his show yesterday about the White House approval of a UAE company's purchase of all the east coast port facilities from New York to Miami even though, in Lou Dobb's words "these people want a Taliban back into Afghanistan and the Jews out of Israel".

This may be inflammatory, but when a leading CNN anchor is leading the charge, as an observer I have to wonder what really is going on in America. What I see is hardly the basis of a new bull market.

The strength of America, as I see it, is in its economy and its capital market. But today, foreign investors hold most of America's debt, and the American consumer wants to buy goods from abroad. Meanwhile, nobody seems to be alarmed with the inflation data or the outsourcing issues.

I really have to question this "hunky-dory" attitude because if most people don't see higher commodity prices coming down the line, followed by higher PPI/CPI figures, followed by rising interest rates, followed by economic hardship, then I think they are fooling themselves.

Traders are following the equity markets higher because the central banks of the world are printing money quickly, but the best returns will continue to come from the commodity producers.

As I write, Crude Oil is up +$1.00 on the day, Gold is up +$7.00, the USD is weak, and the Dow/Nasdaq are down -30 and -12.5 points respectively. But this is options expiry day, so let's keep that in mind.

I wrote this article with the longer-term picture in mind, as most readers know.