Economic News

[Birchtree]

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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.

 

[coolhand]

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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.

 

[Spaf]

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