Q2 GDP slower than expected
FOMC minutes show some very worried Fed heads
NAPM index plunges into economic contraction mode
MasterCard to go public

Hurricane Katrina and its devastation is clearly the story of the day. However, since every reporter and his brother are covering that story, I won't do so here. As usual, I'll focus instead on the economic and corporate issue that the mainstream media overlooks.

The bulls must feel the same way, because they merrily sent the Dow Jones up by 68-points and the Nasdaq up by 22-points, which was almost double the gain on a percentage basis.

I assume the catalyst for the rally was the drop in the price of oil from $69.83 to $68.94 (but not gasoline) and a huge drop in long-term interest rates. The yield on the 10-year Treasury bond fell from 4.10% to 4.01%.

I don't care what the bulls say --- Hurricane Katrina is a big, big negative for the economy and it should be treated as a negative to the stock market.

Don't let a short-term rally fool you. Things are not good.

Q2 GDP slower than expected. The Commerce Department reported the Q2 gross domestic product number and it was below expectations.

GDP, a measure of all goods and services produced in the U.S., increased at an annualized rate of 3.3%. That's down from the 3.8% rate in Q1 and below the 3.5% pace the Wall Street crowd was expecting.

The most important piece of the GDP report was the inflation numbers. The "core" inflation rate increased at a 2.4% annualized pace -- uncomfortably above the Fed's target inflation rate of 1% to 2%.

The end result of this number is that the Fed has a green light to keep raising interest rates.

NAPM index plunges into economic contraction mode. The people who control the purchasing at the largest corporations in the Midwest are right...our economy is headed for some serious trouble.

The National Association of Purchasing Management released its July survey results and its main Business Barometer index from 63.5 in June to 49.2 in July.

==> That is the largest one-month decline ever recorded. That tells me that it is very possible that the economy just rolled over and is about to get a lot worse.

==> This is the first time in 27 consecutive months that the index has been below 50, the threshold between an expanding/contracting manufacturing sector. Any reading below 50 is forecasting economic contraction for the manufacturers.

==> The new orders component dropped from 69.6 to 46.5, the order backlog index fell from 56.1 to 45.7, and amount of unsold inventory sitting on the shelves rose from 56.4 to 60.3.

The NAPM survey is unambiguous: the economy is slowing down...quickly.

And this is even before the effects of Hurricane Katrina and higher gas prices.

FOMC minutes show some very worried Fed heads. The release of the August FOMC meeting minutes showed serious concerns.

Too much speculation: "A few participants voiced concerns that still-low interest rates and insufficient recognition by investors of the dependency of the Committee's policy expectations on economic data were continuing to foster an inappropriate degree of risk-taking in financial markets."

Too much inflation: "Even with this action, the federal funds rate would remain below the level that members anticipated would prove necessary to contain inflation pressures and keep output near potential, and thus in all likelihood further policy action would be required. However, the pace of future policy moves, although likely to be measured, as well as the extent of those moves, would depend on incoming data."

Too few rate hikes: "A number of participants noted that underlying core inflation appeared to be running at a pace around the upper end of the range they viewed as consistent with price stability...participants commented that an increase in inflation from recent rates could have especially adverse effects on longer-run economic performance."

I am hearing a parade of Wall Street experts proclaim that Fed will stop raising rates because of Hurricane Katrina.

I doubt it. Inflation is already too high and the surge in energy prices is going to push inflation even higher. But hey, you don't have to believe me. Listen to what Fed Governor Antonio Santomero said today:

"It is my view that, at the end of the day, these developments may slow the rate at which the economy will grow for a time, but the expansion is strong enough to withstand them."

"The U.S. economy has proven to be surprisingly capable of absorbing such shocks, and after a short period, the effects of Katrina are likely to slow but not stall the forward progress of the national economy."

Gee, I feel so much better now. How about you?

"To keep these incipient price pressures well-contained, the Fed will have to continue shifting monetary policy from its current somewhat accommodative stance to a more neutral one."

"If the economy evolves as I expect, then my sense is that the policy path upon which we embarked just over a year ago -- a movement toward neutral at a measured pace -- will continue to be appropriate."

"We're on a good path, one we could continue."

It doesn't get much clearer than that. No question, the Fed will continue to raise interest rates.

A lot of people think that Ben Bernake is the chairman of President Bush's Council of Economic Advisor and is considered one of the favorites to replace Greenspan. Jeez, I hope not! This is the guy that talked about dropping dollar bills out of helicopters to stimulate the economy. Here is his idiotic view of Hurricane Katrina.

"My guess is that the effects on the overall economy will be fairly modest."

"People are confident that inflation will be low despite these shocks to gasoline and oil prices."

What planet do these guys live on?

MasterCard to go public. I haven't seen the details yet or whether regular folks like you and I can even get any shares, but MasterCard's announcement to go public caught my attention.

Let me give you one reason this MasterCard IPO has the potential to be a big winner. In Q2, MasterCard reported a 19% jump in revenues to $772 million and a whopping 82% surge in profits to $120 million.

As always, I recommend you conduct your own due diligence before investing any of your money.