Market Talk

[Spaf]

imported post

The Kingdom of TSP

Sunday-Weekly

Early Edition



Market News, Doodles, Tea Leaves, & Yak Date: Sept. 18, 2005


Market News.

Kingdom Talk:.Supprise (saving) rally on last Friday, but stox slightly lower for the week.

Elsewhere:....Lube temperature subsiding. Cartel chief due to Yak on Tuesday.

Other News: -> http://www.briefing.com/SilverIndex.htm

-> http://www.bullandbearwise.com/


Doodles, and Tea Leaves - Weekly.

Doodles:
S&P 500 (Index)
Closed at...............1237.91, dn -3.57 for the week.
CMF (money flow) at..+0.0244, up
RSI (strength) at........57.5 [O.B.=70,O.S.=30]
MACD (trend)......bullish
S-STO (signal).....undecided
P-SAR (signal).....bullish
ROC (change)......bullish

Light Crude (NYM)
Closed at..63.00, dn -1.08 for the week.

Attachment:.S&P (3mo) chart ending 9/16. Added: 20dMA, P-SAR, RSI, MACD, S-STO, and ROC.


Tea leaves:......Green


Yak.

Remarks:.........Holding 40/60, also holding Pepto-bismo.
S&P Stops:......Alert: 1229, Trailing: 1217.
Oil Markers:... <64 = ok, 64-69 = worry, >69 = critical.
Weekly TSP Returns: G=+.01, F=-.05, C=-.04, S=-.14, I=-.09

 

[teknobucks]

imported post

THE FED’S WILD IMAGINATION
by Kurt Richebächer

In his testimony to Congress on July 20, 2005, Mr. Greenspan declared it quite likely that the world is currently experiencing a global savings glut. Agreeing with Ben Bernanke, he mentioned this glut as one of the factors behind the so-called interest conundrum, i.e., declining long-term rates despite rising short-term rates.

Having read a lot from the Fed’s luminaries, their inability to distinguish between rampant global credit excess and a global savings glut does not surprise us. In this view, the Federal Reserve has come to the rescue of a world where excessive saving is threatening depression by eliminating savings.

Attracted by superior rates of return on U.S. assets, investors around the world have been scrambling to pour their excessive savings into direct investments, stocks, bonds and real estate in the United States, in this way financing the resulting huge U.S. trade deficit.

While this explanation may seem to make sense, there is one big snag: Not one word of it is true. First of all, in reality, private foreign investors have drastically curbed their investments in the United States. According to the Bank for International Settlement - the international organization of the world’s central banks - Asian central banks financed 75% of the U.S. current account deficit in 2004.

First, private capital flows into the United States have slumped. Without the massive interventions by the Asian central banks, the dollar would have collapsed long ago.

Second, the dollars with which these central banks have been buying U.S. Treasury and agency bonds have definitely nothing to do with Asian savings. Evidently, the central banks are recycling the dollars, no more, no less, which they receive from U.S. trade and capital flows. These dollars have come into the central banks’ possession through their interventions in the currency markets, to prevent a rise of their currencies against the dollar.

To speak of a global savings glut as a possible cause of the surprisingly low U.S. long rates in the face of these blatant facts is truly the height of insolence and absurdity. That this opinion comes from the leading figures of the Federal Reserve is more than shocking.

True, Asian countries have very high savings rates. For China, it is reported to be as high as 45% of disposable income. But this does not necessarily imply an existing savings surplus be lent to America. The bulk of available savings in China domestically is locked up in an even higher domestic investment ratio.

Looking at the global financial system, a straightforward fact to see is that central banks have been amassing foreign exchange reserves at an accelerating pace since the early 1970s. Rising in several large waves, their main source is plainly the soaring U.S. trade deficits.

Having no use for dollars in general, the first dollar recipients in the surplus countries sell them to their banks against their own currencies. These banks, in turn, found ready dollar buyers in firms and investors around the world, wanting to acquire direct investments or other assets in the United States, at least until 2000. Since then, though, capital inflows on private accounts into the United States have drastically receded, while U.S. trade deficits have exploded. In order to prevent a rise of their currencies against the dollar, central banks had to step in as buyers of last resort.

Apparently, it is not widely realized that this big shift in dollar recycling from private accounts to central banks essentially has far-reaching monetary implications for the participating countries and even for the world economy and world financial markets. Buying dollars, the central banks credit the commercial banks in their country with interest-free deposits.

Now, the critical point to see is that the banks, on their part, regard these deposits as their liquid reserves to be used for profitable lending or investment. Inundated with liquid reserves by the dollar buying of their central bank, the commercial banks in these countries embark on faster credit expansion. Shifting the rising surplus of liquid reserves between them, they create credit for consumers, businesses and speculators many times the amount of the liquidity injection by the central banks.

Our focus in particular is on China. As in the United States, the resulting credit deluge is boosting components out of proportion to the whole economy. In China, however, the specific components are real estate and manufacturing investment, while in the United States, it is consumer-spending excess.

What the Asian central banks truly recycle is the U.S. credit excess. But in flooding their banking system through the dollar purchases with liquid reserves, they transplant the virus of credit excess to their own economies. For U.S. policymakers and economists, this is a reasonable and sustainable division of labor. The U.S. economy runs on wealth creation through asset inflation with a high rate of consumption, while China and Asia run on wealth creation through saving and investment with a high rate of investment.

We are fearful of this development, because it affects more or less all industrialized countries with high wage levels. In this way, overconsuming America is force-feeding the rapid mutation of China’s backward economy into a first-class manufacturing power. When China’s credit and investment boom started, in 2000-01, its central bank had foreign exchange reserves in the amount of $165.4 billion. Today, they exceed $700 billion.

We are wondering what is worse for the whole world, China’s further rapid manufacturing growth or a disastrous hard landing. Observing the same monetary and economic follies as in the late 1980s in Japan, we consider the second possibility highly probable.

A persistent, sharp slowdown in China’s imports strikes us as ominous. The general comforting explanation is inventory liquidation. But how to explain, then, the continuous oil and commodity boom? We suspect speculation far more than economic growth as the reason.

With all the talk about a savings glut, we feel obliged to make some remarks about the subject. First, please take another look at the Wicksell quote on the first page, stating, “The supply of real capital is limited by pure physical conditions, while the supply of money is in theory unlimited.” “Supply of real capital” is actually a synonym for available savings.

At an international conference in 1953 about savings in the modern economy, with many heavyweights in economics in attendance, the famous former chief economist of the Fed E.A. Goldenweiser gave a rare precise definition of saving. He said: “Saving means the withdrawal of sufficient resources from the production of consumption and services to have enough for maintenance, expansion and improvement of the plant.” Then, he complained, “that ever since Wesley Mitchell’s Business Cycles there has been a tendency to concentrate too much on the monetary expression of economic developments, and it has become reactionary to think in physical terms.”

From the macro perspective, “saving” provides the physical resources for the production of capital goods in that consumers abstain with part of their income from consumption. Of course, this also involves money flows, but saving’s decisive distinguishing feature is the partial abstention from current consumption to make real resources available for the production of capital goods.

It is ludicrous, therefore, when American economists claim that rising asset prices, increasing consumption, should by counted as saving. When we read decades ago that Mr. Greenspan, long before he became Fed chairman, had expressed precisely this view, he was once and for all finished for us as a serious economist.

The world economy seems to be flooded with liquidity. But there are two diametrically different kinds of liquidity: earned liquidity and borrowed liquidity. The former comes from surplus income or savings; the latter comes from credit and debt creation.

In a country with virtually zero savings like the United States, any liquidity essentially arises from debt creation. This is really fake liquidity depending on permanent, prodigious borrowing facilities, presently the housing bubble. Once this bubble evaporates or bursts, the U.S. economy loses its chief liquidity source - with disastrous effects on asset prices.

The crucial question concerning the U.S. economy is whether it is slowing or accelerating. As explained in detail, we see a lot of fudge in the recent economic data. Our main critical consideration is that a self-sustaining recovery would absolutely require a strong rebound in business investment. But that is not in sight. On the other hand, the turnaround in the housing bubble is only a question of time. A fairly short time, we think.

The consensus expects that the U.S. economy has the "soft spot" behind it and will surprise positively. We expect shocking economic weakness. All asset prices, depending on carry trade, are in danger, including bonds.

Regards,

Dr. Kurt Richebächer
for The Daily Reckoning

 

[grandma]

imported post

Tekno, Dr Kurt says:"The crucial question concerning the U.S. economy is whether it is slowing or accelerating. As explained in detail, we see a lot of fudge in the recent economic data. Our main critical consideration is that a self-sustaining recovery would absolutely require a strong rebound in business investment. But that is not in sight. On the other hand, the turnaround in the housing bubble is only a question of time. A fairly short time, we think."

When writers discuss `business investment', just what excatly are they refering to? Companies reinvesting more into their own business, building new plants? ...other companies - or countries - investing in them? Or just us, the everyday stockmarket players investing w/our stock buys? Do the `manipulators', or even those w/multiple resources, ie Buffett et al, determine the way of the market with their buys/sells/puts/derivatives in such a way as toavoid any rebound that might be detrimental to their personal finances? :s

Thanx - I hope you can understand what I think I am asking - !

 

[teknobucks]

imported post

grandma wrote:

Tekno, Dr Kurt says:"The crucial question concerning the U.S. economy is whether it is slowing or accelerating.

short answer is it is doing both.....sector rotation from those companies not supporting the re-building of the gulf coast to those who do. as the oceanside guy eluded to on the thread from last week we will see demand on building products creating inflated prices.

as a side note we re-roofed a house in the orlando area three years ago it was 51 square in roofers terms...cost was $4900. we just re-roofed a 47 square roof 5 months ago for $8700. roofer said materials and insurance were to blame because of the major hurricane hits the area has taken.

as a layman i feel it is certainly imperitive to protect from the feds manipulation of this event. they will print enough liquidity to slog thru this thus driving the dollar lower. with the dollars being pumped out like candy the I fund should do well.

as far as buss. investment any stox which supports the re-building effort should rise as the companies recieve financial injections on a major scale.....oil infrastructor, housing, commer. building, earth moving. manyconstruction and building stox are on the s&p.
http://tinyurl.com/bg7so
all jmho of course.

tekno

 

[Birchtree]

imported post

I think it is time to dig out my old list of S&P stocks - just to see who all is in the index. The large-cap sector outperformed friday for the first time in awhile - could this be the start of a multi-month transition from the infamous R2K to the S&P?

 

[teknobucks]

imported post

Federal Reserve Charts


Adjusted Monetary Base: Short-term
http://research.stlouisfed.org/publications/usfd/page3.pdf

MZM (Money of Zero Maturity): Short-term
http://research.stlouisfed.org/publications/usfd/page5.pdf

M2: Short-term
http://research.stlouisfed.org/publications/usfd/page6.pdf

Monetary Base: Long-term
http://research.stlouisfed.org/publications/mt/page10.pdf

MZM, M1, M2, M3: Long-term
http://research.stlouisfed.org/publications/mt/page6.pdf

Money Velocity: Long-term
http://research.stlouisfed.org/publications/mt/page12.pdf

U.S. Interest Rates
http://research.stlouisfed.org/publications/mt/page9.pdf

Real Interest Rates
http://research.stlouisfed.org/publications/mt/page8.pdf

U.S. Government Debt
http://research.stlouisfed.org/publications/net/page17.pdf

U.S. Trade Deficit
http://research.stlouisfed.org/publications/net/page18.pdf

Gross Savings & Balance on Current Account (Balance of Payments)
http://research.stlouisfed.org/publications/net/page15.pdf


Federal budget is Katrina's next victim

By Kevin G. Hall and James Kuhnhenn

Posted on Sat, Sep. 17, 2005

WASHINGTON - President Bush and lawmakers from both parties are pledging record reconstruction spending in the wake of Hurricane Katrina, estimated at $200 billion or more. That's certain to add to the mushrooming national debt that already has the country dependent on foreign investors.

The $200 billion is about equal to what's been spent so far on the wars in Iraq and Afghanistan. It's almost half the size of this year's domestic discretionary spending, essentially everything the government does besides national defense, Social Security, Medicare and Medicaid.

President Bush vowed Friday to rebuild the battered Gulf Coast -- ``whatever it costs'' -- and to pay for it by cutting the federal budget, not raising taxes.

``You bet it's going to cost money. But I'm confident we can handle it,'' Bush said. ``It's going to mean that we're going to have to cut unnecessary spending.''

The current federal budget deficit stands at $331 billion -- already at the third-highest level ever -- and the national debt is $7.94 trillion, about $2.2 trillion more than when Bush took office.

Each year's deficit spending adds to the federal debt, which is passed on to future generations. Taxpayers will pay about $208 billion for the fiscal year starting Oct. 1 simply to cover interest costs on that debt.

That's more than 25 times next year's $8.2 billion budget for the Environmental Protection Agency, illustrating that exploding deficits impose large costs on today's taxpayers. The money for interest payments on the debt goes to investors in Treasury bonds, such as the Chinese government. Foreigners now hold 46 percent of the Treasury's debt.

Increasingly, financing the federal deficit depends in part on the kindness of foreigners, because they determine the demand for Treasury bonds. If these nations sour on U.S. Treasury bonds, interest rates would have to rise to keep investment coming in.

Asked Friday about the impact of rising deficits and debt on tomorrow's taxpayers, Bush called on Congress to make some offsetting cuts in spending on other things. He didn't specify what, and top White House advisers had not identified a single program cut that would offset Hurricane Katrina expense.

Budget analyst Brian Riedl of the conservative Heritage Foundation predicted that Katrina, the war in Iraq and huge costs for the Medicare prescription drug program could push the federal deficit to $520 billion in 2008 and argued that Bush needs to plug that hole with spending cuts. ``The president laid out a very ambitious agenda. I wish he had told us where the money was going to come from to pay for it all,'' he told Newsday.

Some fiscal conservatives are alarmed.

``It is inexcusable for the White House and Congress to not even make the effort to find at least some offsets to this new spending,'' said Sen. Tom Coburn, R-Okla.

Sen. John McCain, R-Ariz., another fiscal conservative, suggested that the first place to begin offsetting Katrina's costs is to chop the $287 billion highway bill, which Congress passed earlier this summer. They see $24 billion in savings by eliminating ``earmarks'' that individual lawmakers inserted for special projects back home, in other words ``pork barrel'' projects that were not approved by the usual review committees.

``We have to be concerned about future generations of Americans upon whom we're laying an additional $100 billion, $150 billion, $200 billion in debt burden that they're going to have to pay for,'' McCain said. ``We're going to end up with the highest deficit probably in the history of this country.''

Democrats, however, emphasize rethinking all the tax reductions that have passed since Bush became president, for they reduced the revenue flow that funds government spending. They were quick to criticize the president's renewed fight to extend his tax cuts, which Congress has postponed consideration of for at least the next months.

Rep. John Spratt of South Carolina, the ranking Democrat on the House Budget Committee, pointed out the long-term effects of those extensions.

``The president should acknowledge the consequences of what he's talking about,'' Spratt told the New York Times, adding that the combined cost of Bush's tax proposals -- including a possible repeal of the alternative minimum tax -- could hit $2 trillion over 10 years. ``This will clearly preclude cutting the deficit in half over the next five years.''

``I'm not really into cutting right now,'' Senate Democratic leader Harry Reid of Nevada said Thursday, referring to spending. Instead, he urged Republicans to abandon plans to make the 2001 and 2003 tax cuts permanent, especially the repeal of the estate tax.

But with Bush and the Republicans, who control Congress, dead set against raising taxes, and with history showing that Congress is highly unlikely to cut existing programs anywhere near $200 billion, most if not all of Katrina's cost will add to the deficit. And that spells trouble down the road.

``I think the short answer is it is going to make the budget situation even worse, and the way we're going to pay for it is borrow the money,'' said Robert Bixby, the executive director of the Concord Coalition, a bipartisan group that advocates fiscal responsibility.

Adding to the debt is particularly risky because it complicates a grim scenario that is just around the bend. In 2011, the first wave of the baby boom generation will turn 65. For the two decades that follow, budget experts warn, there will be unprecedented strain on government spending for retirement and health care programs.

``We're on the verge of a huge national expense, and we have no idea how to pay for that,'' Bixby said. ``The danger here is that we're simply making that problem even worse by entering it with the budget so deeply in deficit.''

http://www.mercurynews.com/mld/mercurynews/news/12671176.htm

 

[Rolo]

imported post

Birchtree wrote:

The large-cap sector outperformed friday for the first time in awhile - could this be the start of a multi-month transition from the infamous R2K to the S&P?

I was wondering the exact same thing.

 

[pyriel]

imported post

teknobucks wrote:

as a side note we re-roofed a house in the orlando area three years ago it was 51 square in roofers terms...cost was $4900. we just re-roofed a 47 square roof 5 months ago for $8700. roofer said materials and insurance were to blame because of the major hurricane hits the area has taken.

This is telling me something... Why are we not in ROOFING BUSINESS!!!!

 

[Greg]

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The dollar opened much higher this evening at 88.4

 

[Quips]

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Techno:

Richenbacher's assessment is extremely bearish. He sounds like a gold bug ... and maybe even that in bullion.

I can't disagree much with his assessment per se, however I believe the day of reckoning will not be that soon.

Maybe we shouldn't consider equity assests as "savings" ... at least not to the extent of influencing the lifestyle attributed to it. My take on that article is that Richenbacher would have us to believe that our equity assets may be valued at half of their given amounts.

And he adds "that includes bonds as well". LOL (lots of luck)

So that doesn't leave much left besides cash ... which may be de-valued currency... or gold.

The article also mentioned something about wages in the West; funny how the pound, the dollar and the euro all seem to be falling ... of all things the only currency that seems to be strengthening is the yen lately.

But it is funny that the pound, the dollar and the euro seem to be valued on their relative weakness to one another. Seems that way to me.

 

[vectorman]

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I notice some members increasing their position in the I fund for tomorrow.Japan's market is closed until Sep 20th.Whatare the odds that the Japan market willcontinue to go up tomorrow when it opens afterthe price of oil has increasedby more than 3 dollars per barrel and may increase more by tonight has Rita moves into the Gulf of Mexico. Chevron and Shell oil have already started to evacute their rigs andRita is not even in the gulf yet. Risk or reward, Japan holds a pretty good position in the I fund. Any comments?:?

 

[vectorman]

imported post

Just an observation, but not counting mid April the last few times the Dow had over 400 million in volume, you can see what happen to the market soon after.

 

[Spaf]

imported post

The Kingdom of TSP

Daily Edition

Market News, Doodles, Tea Leaves & Yak Date: Sept. 19, Closing


Market News.

Kingdom Talk:.Stox out! Oil in!

Elsewhere:....Big Q: Will the Cartel Creature release funds in hostage held by Horseman Rats?


Doodles and Tea Leaves - Daily.

Doodles:
S&P 500 (Index)
Closed at......1231.02, dn -6.89
CMF (money flow) at.-0.044, up
RSI (strength) at...52.6, dn
MACD (trend)...bullish
S-STO (signal)..bullish
P-SAR (signal)..bullish
ROC (change)...bullish

Light Crude (NYM)
Closed at......67.39, up +4.39

Tea Leaves:..............Yellow and Green


Yak.

Remarks:.....Holding 40/60
S&P Stops:...Alert: 1229, Trail: 1217
Oil Markers:.<64= ok, 64-69= worry, >69= panic.

 

[The_Technician]

imported post

Every once in a while you get a good read.....read this close and see the news in the news...

[align=justify]Recap of US Markets
STOCKS
Equity investors were not always of a single mind this week as they looked at oil prices as well as daily economic indicators. Investors were debating the merits of a Fed rate-hike pause at the September 20 FOMC meeting. Many equity investors viewed a potential pause as a positive factor on share prices. However, as the week progressed, more investors came to the conclusion that perhaps the Fed was doing the right thing by focusing on inflation and trying to get the fed funds rate target back to neutral.
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BONDS
The chart below, depicting the Friday levels of the 2-year and 10-year note yields, does not appear to have changed at all over the past couple of months. The spread between the 2-year and 10-year note remains quite tiny. It was 28 basis points at Friday's close.
Bond investors have gone back and forth on the question of a Fed pause. Will the Fed not raise the fed funds rate target by 25 basis points at Tuesday's FOMC meeting because of a potential economic slowdown stemming from the aftermath of Hurricane Katrina? Or will the Fed stay the course and continue to focus on the inflationary pressures coming from energy prices - and the aftermath of Katrina? Economists were divided on the issue as well, but it now appears that the majority of forecasters are going with continued rate hikes at this time.
[align=justify]There is no question that the post-FOMC meeting statement will be more important than ever. And markets will be surprised on Tuesday - no matter what the Fed ultimately does.
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[align=justify]Markets at a Glance

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Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
The Economy

[align=justify]OUTSIDE ENERGY, INFLATION IS TAME IN AUGUST
The producer price index increased 0.6 percent in August after posting a 1 percent hike in July. The consumer price index recorded 0.5 percent gains in both July and August. To no one's surprise, the primary culprit is energy. August energy prices increased 3.7 percent in the PPI while they jumped 5 percent in the CPI. Note the PPI generally prices goods at mid-month, while CPI prices are gathered throughout the month including the last day of the month. This means that gas price hikes that took place after Katrina were starting to be factored in the CPI. But Labor Department officials noted that sharp energy hikes have yet to be felt in the CPI. Expect much larger gains in September.
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[align=justify]Excluding food and energy, both the PPI and the CPI were tame during the month. The core PPI was unchanged, held down by declines in auto prices as well as computer prices. The core CPI increased 0.1 percent for the fourth straight month. Although apparel prices jumped 1 percent (after declining in the two previous months) prices of other goods were surprisingly tame. For instance medical care costs were unchanged during the month, the best showing since late 1975! Total housing costs increased 0.2 percent, held down by lodging away from home which posted a 1.6 percent drop for the month. Education and communication costs dipped 0.1 percent as educational books and supply costs fell 0.1 percent for the month. This confluence of friendly positive factors is not necessarily going to repeat again in coming months. But at least through August, core prices were not accelerating.
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Federal Reserve officials do not base their policy on history, though. The Fed will be concerned with price pressures stemming from the highly stimulative fiscal policy plans and the rebuilding that will result from the Katrina devastation. So even if the Fed can feel comfortable with the August inflation figures, they must look ahead.
RETAIL SALES PLUNGE, BUT HEADLINE NUMBER IS MISLEADING
Retail sales dropped 2.1 percent in August, more than reversing July's 1.8 percent hike. The decline was due entirely to the auto sector where sales at motor vehicle & parts dealers plunged 12 percent in August! This just about reverses the cumulative increase of 11.1 percent that took place in June and July. Automakers tend to create a lot of volatility in sales when they play the incentive game (on/off). The August drop in motor vehicle sales, though, was not all about incentive removal. It appears that consumers decided to take a pass on light trucks despite the heavy incentives that were still being offered. Maybe consumers are finally realizing that high gas prices and big tanks don't help their financial balance statement.
[align=justify]Excluding the auto group, retail sales increased 1 percent in August, twice as fast as July's 0.5 percent gain. But before one gets too excited about the seemingly strong figure, keep in mind that half of that gain was due to gas station sales - where price spurts helped increase the nominal value of spending. Excluding autos and gas, retail sales increased 0.5 percent for the month, a solid increase, but this follows no growth in July. Indeed, take a look at the chart below and notice that the trend in spending on goods other than gasoline and autos has moderated significantly in the past few months relative to earlier in the year. A 6-month moving average of nonauto, nongas retail sales shows average monthly gains of 0.3 to 0.4 percent in July and August compared with average monthly gains of 0.5 to 0.7 percent in the previous nine months. Retail sales have indeed moderated as consumers have less discretionary funds to spend since gasoline prices have surged over the past year.
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Due to the uncertainty surrounding how the economy will behave in the aftermath of Hurricane Katrina, economists and market players (and Fed policy makers) are closely monitoring consumer attitude surveys these days. And the University of Michigan's consumer sentiment index plunged in mid-September, falling 12.2 percentage points after posting a sharp 7.4 percentage point drop in August.
Over the long run, there is no question that consumer confidence is related to spending: when consumers are optimistic about economic conditions, they will spend more and when they are pessimistic about economic conditions, they will spend less. From one month to the next, it is less useful to use consumer attitudes as predictors of retail sales. However, there is also no question that consumer sentiment has certainly played a role in helping to determine whether or not we head toward recession - or at least some slowdown in spending. After the preliminary September consumer sentiment data were reported on Friday morning, everyone appeared to be pointing to the "CNN effect" where consumers become pessimistic after seeing horrific news. Indeed, consumer attitudes fell sharply (-9.7 points) in September 2001 too.
[align=justify]We agree that a certain portion of the September drop could be attributed to the CNN effect. However, consumers across the country were also facing significantly higher gasoline prices. In fact, gasoline prices were already rising in August - and that's why the consumer sentiment index had fallen in the previous month. The chart below depicts the path of the consumer sentiment index back to 1980 with the shaded bars representing recessions. Declines of the magnitude posted for this September are highly unusual. The last decline of 12.2 was seen in December 1980. We are not, by any stretch of the imagination, predicting a recession because of these figures. However, it is more likely that the large declines posted in August and September are not entirely due to the CNN effect and are in part due to rising gasoline prices which are making consumers feel poorer. Gas prices have fallen at the pump in the past week or so, but by a very small amount. Consumers are still not happy about $3/gallon gas. While consumers were very optimistic about economic conditions from 1995 - 2000 (during the period of irrational exuberance in the stock market) they were less optimistic from 1991 - 1995, but consumer spending was still growing during this period. The consumer sentiment index appears to be in the same range from 2001 - 2005 as we saw in the early 1990s. More relevant than September's confidence numbers will be October's confidence figures - will we see a reversal for the month? That will be more telling about whether consumers are truly optimistic or pessimistic about current conditions.
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[align=justify]PRODUCTION GROWTH CURTAILED BY KATRINA
While most of the August data do not really show a negative impact from Katrina, industrial production growth was indeed curtailed by the hurricane. According to Federal Reserve estimates, growth was reduced by 0.3 percent points in August. Consequently, the index of industrial production inched up only 0.1 percent for the month. Manufacturing production increased 0.3 percent, but mining fell 0.6 percent and utilities dropped 0.5 percent. The chart below compares year-over-year changes in manufacturing production to year-over-year changes in production of motor vehicles & parts and high tech. The red line depicts manufacturing (against the left axis) and shows a downward trend that began over a year ago. The blue line (against the left axis) shows a lot of volatility in terms of vehicle production. Given that automakers stop and start incentives to sell cars, it isn't surprising that they would need to stop and start assembly lines too. High tech production (the teal line against the right axis) shows that production growth has been fairly steady - leading to year-over-year gains of roughly 20 percent over the past two years. The high tech sector can't get industrial production out of its doldrums, though, since it accounts for only 4.5 percent of production, whereas motor vehicle & parts production accounts for more than 7 percent of the index.
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Most likely, the aftermath of Katrina will curtail production growth in September as well. The impact could be larger since a bigger portion of the month will be impacted.
The regional Fed surveys, which can sometimes be used as leading indicators for national surveys, showed moderation in manufacturing activity in September. The general conditions index from the Philadelphia Fed survey fell back to 2.2 in September from a level of 17.5 in August. While any level over zero still represents growth rather than contraction, this marks a significant moderation in the rate of growth. Even more noteworthy was the drop in the index level for the 6-month outlook -- from 33.4 in August to 7 in September. A special question on this survey focused on energy prices. For the most part, manufacturers are indeed finding that higher energy prices are dampening production and new orders.
[align=justify]The Empire State manufacturing survey wasn't as weak as the Philly Fed survey. The general business conditions index fell back to 17 in September from 23 in August. While the New York Fed did note that data were gathered between September 1 and 14, (post-Katrina), they did not appear to indicate whether any of the decline was directly due to Katrina.
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[align=justify]JULY TRADE DEFICIT NARROWS
The international trade deficit narrowed in July to $57.9 billion after widening in June to $59.5 billion. While exports only increased 0.4 percent in July, imports fell 0.7 percent for the month. There was no single category of exports that posted strong gains; they were small, but widespread. Imports of crude oil increased, but imports of nonauto capital goods fell, as did imports of nonauto consumer goods. While exports have not exhibited a sharp growth acceleration over the past year, the year-over-year gain in imports has moderated significantly during the period. On the whole, most economists are still predicting the international trade deficit will widen in coming months. Katrina could impact August and September figures - New Orleans is the fourth busiest port in the U.S. However, other coastal cities may have taken up the slack in the short run.
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The Bottom Line
Federal Reserve officials will have plenty to mull over when they meet on September 20. Some economists believe that the tame inflation figures for August will give Fed officials the cover they need to take a momentary pause in their rate hikes. Other economists believe that the tame inflation figures will only make their job harder. Keep in mind that the Fed looks at more than old inflation news to make decisions. They are also monitoring daily commodity figures - and can call contacts in their regions to see how prices (and the economy) are behaving. I have no doubt that they plan to look at more than published data in light of Katrina. And Fed officials will take into account the highly expansionary stimulus that will develop from all that fiscal spending.
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[The_Technician]

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Looks like the market gave it a thumbs down on the interest rate increases....darn.....and almost everyone in the market for the last several months was saying that things were soooooo gooooooooddddd...:shock:....they sure fooled me :l

Actually seeing how the housing starts have declined that means that buying goods to fill those will decline and so forth it was bound to happen.....they ran the wheels off the energy sector....now at this point if we get a good drop.... it seems we will have to wait for a while before anything looks great again....I'm a patient person...:^

Time to go out and watch the plants grow.....

:dude:

 

[The_Technician]

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The next question is ...do we go below 1150 from here on the S&P...

:^

 

[Greg]

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NEW YORK (Reuters) - U.S. stocks fell on Tuesday after the Federal Reserve raised the benchmark interest rate to 3.75 percent and gave no indication it's near the end of its rate-increase campaign.

 

[The_Technician]

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"NEW YORK (Reuters) - U.S. stocks fell on Tuesday after the Federal Reserve raised the benchmark interest rate to 3.75 percent and gave no indication it's near the end of its rate-increase campaign."



I wouldn't expect things to settle as of yet Greg.....they say there is no inflation but raise rates though.....I do wonder which side of the mouth the Feds will speak out of next time....

I would start making some moves in the monetary districts for the next several years....looks like everyone and their uncle is out with a hand out.....gonna get bad I'm afraid......too many wanting too much for their services....even the big'uns ask too much....this is depressionary...:%

:^

 

[Show-me]

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I hope this is just over reaction. They should have expected nothing less.

 

[Spaf]

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The Kingdom of TSP

Daily Edition

Market News, Doodles, Tea Leaves & Yak Date: Sept. 20, Closing


Market News.

Kingdom Talk:. Another sell off!

Elsewhere:.... Cartel Creature defends Horseman Rats?

Elsewhere:.... Another storm looms, Rita!

Doodles and Tea Leaves - Daily.

Doodles:
S&P 500 (Index)
Closed at......1221.34, dn -9.68
CMF (money flow) at.-0.002, dn
RSI (strength) at...46.6, dn
MACD (trend)...undecided
S-STO (signal)..bearish
P-SAR (signal)..bearish
ROC (change)...undecided

Light Crude (NYM)
Closed at......66.23, dn -1.16

Tea Leaves:..............Yellow (caution) Trailing stop broken, oil in worry range.


Yak.

Remarks:.....Holding 40/60
S&P Stops:...Alert: 1229, Trail: 1217
Oil Markers:.<64= ok, 64-69= worry, >69= panic.