Thread: Economic News

I've not posted a whole lot in the past few weeks, but I haven't stopped trying to gain more perspective on the market (read global) during this time. It has been a tough year to say the least (for just about everyone).

While I do not have any articles to post at the moment, but I would like to comment on what I see going forward to the end of the year.

Currently, I donot see a catalyst to propel this market significantly higher.

While inflation is "supposedly" under control it is obvious the market has its radar on for any data that can be used to gauge the true picture. The marketis ona constant inflation watch (stox and bonds) for good reason...energy prices.The CPI is usedas a measure of what consumers are paying for goods minus food and energy. But it is no secret that food and energy costs are taking their toll.

Specifically, energy has been high profile in the media. Gasoline costs have soared and even though they have abated to a lesser degree there is no hard evidence that prices will drop significantly in the next few months. AG said recently that we will probably have to get used to these high prices. This is coming fromthe fed chair, but I have not seen too many folks willing to argue the point. Winter is not far off and those folks living in the colder climates are more than likely going to get hit with much higher costs to keep their homes heated than they have historically paid. No matter how I look at this it isn't pretty.

Supposedly, Joe Sixpac has been keeping our own domestic market afloat. How has he been doing this? We've been led to believe in large measure he's been tapping his home equity. And while I would not deny that I also believe there is another reason....low interest rates. We've also been told that the US savings rate is at an all time low. Gee, do you suppose it's all the cheap money? For the last several years savings account rates have been in the dirt. For quite a while it was less than 1%. LESS THAN 1%!!! Does this sound like a prescription for incentivizing savings??? And don't forget, we have to pay tax on all that savings too. Let's see, earn a paltry 1% or so on my savings or mount a HD plasma set onthe wall. Guess I'll get that plasma HD set. It'll make me feel a whole lot better.

How about the twin deficits? They haven't gotten any better lately. In fact this hurricane season has practically guaranteed it's getting worse. Remember last year how the twin deficits were one of the main reasons that the dollar was tanking? Wonder why that hasn't played this year? Interesting.

I've noticed, as many of you have I'm sure, that the 10-year note has been moving higher. It's 4.57% as of last Friday. Now I don't know where it's headed, but that means mortgage rates are moving higher too. Not enough to put a serious damper on the housing market, but something to keep an eye on. But since I've mentioned the housing market let me restate the fact that Joe Sixpac has been tapping his equity and fueling our economy. If housing finally cools off that cash flow stops. It's only a matter of time asprices can't keep moving higher without at least pausing at some point in time. While the cost of housing has many variables I found it very interesting recently to read that San Diego, CA has priced out all but 9% of folks living in the area. Scary.

Hey, it's the end of the year. Doesn't that mean a Santa Clause rally? I keep hearing we will rally to eoy like it's a given. Yeah, like this market's been following any kind of script this year...LOL.

I know this has all been negative comments about the economy, and before I get off that bent let me just throw it a few more quick jabs before I move on.

The current CIA leak probe (don't think Libby is the end of this), dollar uncertainty, Iran sabre rattling, Iraq war, Afghanistan, avian flu scare, terrorism. Boy, Ben's got his work cut out for him.

Okay, did I miss anything?

Dennis, I'll let you cover the positives...LOL.

While everything I've covered casts a negative light on the markets, I am not necessarily bearish. All this stuff creates fear and fear is what we need to drive the markets higher. I don't know how we're gonna get there, but I'm waiting for that catalyst. It may be China. It may be a global shift that sees the US savings rate turn higher while the savings glut in European and Asian markets begins to get spent.I don't know, but I sure hope it comes soon.

Coolhand,

Not really very negative - the market can survive. The blessing going forward will be the manufacturing sector regaining momentum. American manufacturers, in a pleasant surprise, said business turned up in September, despite Hurricanes Katrina and Rita, and the jump in energy prices, a suggestion that the storms didn't do significant damage to the economy outside of the ravaged Gulf Coast.

The Institute for Supply Management reported its monthly index jumped to 59.4% in September from 53.6% in August, a 13-month high. A reading above 50 indicates the manufacturing sector is expanding. Many analysts had expected the September reading to decline. The consensus reading to be released on Nov. 1 is a drop to 57.5%. My bet is the index holds or increases in value.

The across the board improvement in orders, production, employment, and exports confirm that manufacturing outside the Gulf Coast region was not hurt by the hurricane disruptions. The ISM employment measure inched up to 53.1% in Sept. from 52.6% in August. Its index of new orders leaped to 63.8% in Sept. from 56.4% in August. Everything seems to be in place for a continued expansion with a resumption of the bull market. The new home owner sitting on his new porch will be left behind - but the bull doesn't want him along for the ride anyway - he made his choice so let him enjoy his new home fully slammed out.

[copied post]

Researched by: TheTechnician

US Economic Events & Analysis (10/28/05):

Simple Economics [Link] http://tinyurl.com/8jtg9

The Kingdom of TSP

The Constable Files

NEWS: While we haven't arrested Horseman Krude. He was last seen riding out of town!

FOMC: hikes borrowing and saving rates




Short Take - November 2, 2005



Evelina M. Tainer, Chief Economist, Econoday




The FOMC voted unanimously to raise its federal funds rate target by 25 basis points, bringing the target rate to 4 percent, a rate we haven't seen since June 2001. While we don't yet have figures for October, it is unlikely that inflation will suddenly accelerate from the pattern we've seen over the past few months. With core inflation at roughly a 2 percent rate, and the fed funds rate target at 4 percent, it implies that the real fed funds rate is currently 2 percent. Also, it is important to keep in mind that core inflation is at the top end of the 1-to-2 percent range that appears acceptable to most Fed officials. Even if the core inflation rate remains at 2 percent, the Fed will want to raise rates further so that core inflation falls from the top end of the range.
The post-meeting statement was hardly changed from the September 20 statement. It basically reflected the fact that everyone has a better handle on the state of affairs reflecting the damaged Gulf Coast area. (In fact, FDIC chairman Donald E. Powell was named on Tuesday as the coordinator of the relief effort in the Gulf Coast region.) Fed officials continue to believe that the risks are balanced with respect to growth and inflation even though they do mention the possibility that "the cumulative rise in energy and other costs have the potential to add to inflation pressures." Nevertheless, the Fed remains "measured" in its approach. Most likely, the Fed will raise the funds rate target an additional 25 basis points in December and January - as is the consensus among Wall Street economists these days.
[align=center][/align]

So what does this mean for consumers?
The 2-year Treasury note yield has risen in tandem with the fed funds rate target, although not by the same magnitude each month. Yields did rise 31 basis points in October from the September average. Even though we have finally seen some increases in long term yields, these haven't been as large as increases in short term yields. The 10-year note yield did jump 26 basis points in October to 4.46 percent from the September average. At the same time, the average yield on 30-year fixed rate mortgage loans increased 30 basis points to 6.07 percent. Market rates move along with expectations of Fed rate changes, so Treasury yields and mortgage rates will probably continue to rise after today's rate hike, but only because investors are now expecting the Fed to raise the target rate again in December and January.
[align=center][/align]

Some consumer rates don't float freely in the market, but are determined by banks, which in turn depend on the Fed. For instance, banks' corporate base rate, also known as the prime rate, move in lockstep with the Fed. Given the 300 basis point spread, Tuesday's rate hike will push the prime rate up to 7 percent. Typically, banks tie their home equity loans as well as credit card rates to the prime rate.
Home equity loans are quite popular in that they remain (until the next tax reform) tax-deductible. While some homeowners refinanced their home loans to cash out equity, some may simply have used lines of credit to borrow against their home equity. Each measured increased in the fed funds rate target - and subsequently home equity loan rates - hurts consumers just a little bit more. We are taught in Econ 101 that all decisions are made at the margin. This means that each 25 basis point increase in the fed funds rate tightens the screws on one or two or three more homeowners.
In a similar fashion, credit card rates that are tied to banks' prime rate see incremental increases in the interest rate. For those consumers that maintain balances, the incremental 25 basis point hike will make a difference. Particularly now that consumer regulations are forcing credit card companies to double the minimum payments on consumers credit cards.
While the measured increases in the fed funds rate target are tightening the screws on consumers who borrow, they are also boosting interest income for savers. For several years, bank rates on savings accounts, including certificates of deposit, have been miserable. Finally, banks are offering rates (generally in line with Treasury yields) that make it reasonable to save again. Indeed, interest income payments on savings accounts are once again noticeable. While rising interest rates are generally viewed in a negative fashion by equity investors, small savers who do not invest in the stock market will be happy to see their savings account grow.
[align=justify]Bottom Line
To no one's surprise, the Federal Reserve raised the fed funds rate target by 25 basis points to 4 percent. As this rate gets filtered through the banking system, borrowers will find their costs increasing, but savers will find some extra money in their accounts. Higher borrowing costs will eventually choke off some spending, and while the higher interest rates for savings aren't likely to induce extra savings, regular savers will benefit from some extra income![/align]

The Kingdom of TSP

The market and the economy: Q4

"Every year the past five years, the talk has started out that it will be a disappointing year. Then, it ultimately turns out just fine. This year will be similar. "
--Dick Green, Briefing.com

Rgds, and be careful! Spaf

The Kingdom and Krude



November 3, 2005


ENERGIES: December crude oil closed up $2.03 at $61.78 a barrel today. Prices closed near the session high today on a strong short-covering bounce from recent losses. But the downtrend from the late-August high of $71.57 remains in place.

The Kingdom of TSP - Economic News

November 4, 2005

Where's the Pizza? Ans: The Creature from the Cartel keeps raiding the Pizza vans!

Mark Cotton of MarketWatch had this to say: "You have the classic dichotomy where you have a strong economy, but you also have the Fed in a tightening phase, raising interest rates to slow it down."

Elsewhere:
Natural gas loses nearly 13% for the week
Oil loses 1% for week on mild weather, higher Gulf output
By Myra P. Saefong,MarketWatch

SAN FRANCISCO (MarketWatch) -- Natural-gas futures closed Friday at their lowest level since August, down almost 13% for the week, while crude-oil futures fell over $1 a barrel to end the week with a loss of 1%.

Light sweet crude for December delivery closed at $60.58 a barrel, down $1.20 for the session and down 64 cents for the week. The contract climbed by more than $2 on Thursday.

Oil and natural-gas production in the Gulf following Hurricanes Katrina and Rita continued to recover.

Sounds like good news to me! Spaf

This article makes a good point about the dollars chances to keep gaining strength...or not.

AG also had some words in the past few days about our govmnts uncontrolled and unsustainable spending. Once rate hikes stop, the dollar will probably turn.

http://tinyurl.com/8wngq

Economic Preview

Higher prices, slower spending
Data to show upside, downside risks to economy

ByRex Nutting, MarketWatch

Article link ----> http://tinyurl.com/cp6xe

The Kingdom of TSP

The Constable Files

NEWS: While the damage may have been done. It appears that Krude is on the run!