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5 Items For Your Review beginning with today’s summary from CNN/Money:
hopeful expectations are that Q4 will be better due to lower energy prices. Economy weakest in 3 years: GDP grew at
just a 1.6% rate in third quarter, down from 2.6% in the second; inflation
gauge retreats as well. By Chris Isidore, CNNMoney.com senior writer, Friday, October 27 2006:
10:22 AM EDT NEW YORK - Economic
growth slowed to the weakest pace in more than three years in the third
quarter, as the government's main gauge of the strength of the U.S. economy
came in much lower than analysts had forecast. Gross domestic product (GDP), the broadest measure of the
nation's economy, grew at a 1.6% annual rate in the quarter, the Commerce Department
said, down from the 2.6% rate in the second quarter. Economists surveyed by
Briefing.com had forecast a slowdown to 2.1 percent. While the slower than
expected economic growth isn't a positive, some economists argued the economy
appears poised to bounce back in the current quarter, helped by lower energy
prices. And the slower growth, and a price reading in the report that showed
less inflation pressures than expected, raised hopes that the Federal Reserve
will could start to cut interest rates early next year, as the central bank
tries to find the balance between economic growth and price stability. Weaker growth in the quarter came partly to a rising trade gap, which
subtracts from GDP, as well as a slump in the nation's housing market. Consumer
spending also came in a bit weaker than expected. (Also See New home price plunge biggest since
'70 and The bubble-proof economy) On Wall Street, stocks fell modestly after the report, on the
heels of a string of record highs for the Dow Jones industrial average. Stocks
have been rallying on the belief among investors that economic growth was
slowing enough to curtail inflation but would pick up again next year. Treasury
bond
prices rose on the news, trimming the yield on the 10-year note to 4.67
percent. The report's closely
watched inflation reading, the so-called core PCE deflator that measures of
prices paid by consumers for goods other than food and energy, climbed at a 2.3
percent rate in the quarter, down from 2.7 percent in the second quarter. Some
economists had been looking for a 2.5 percent rate, and the 2.3 percent rate is
closer to the 2.0 level that is widely considered to be in the Fed's comfort
zone. The Fed has cited the
slowing economy as it's held rates steady at its last three meetings, following
17 straight rate hikes over the previous two years. "This is a
market-friendly number," said Anthony Chan, chief economist for JPMorgan
Private Client Services. "It certainly extinguishes much of the chatter
going on from some Fed officials about a rate hike or an indefinite
pause." The housing market in
particular has cut into economic growth. Home builders have cut back on
construction due to a glut of homes on the market. Two of the biggest builders,
Pulte
Home (Charts)
and Centex
(Charts),
both reported sharply lower earnings and cut their forecasts this week, and
Pulte announced it would cut 10 percent of its staff. Automakers have also seen slumping sales and rising inventories,
causing Ford Motor (Charts) and the
Chrysler Group of DaimlerChrysler
(Charts) to post losses
and announce production cuts. Even with improved results at General Motors (Charts) the company cut
output at U.S. factories in the quarter. (Also see Top auto dealer to cut orders from
Big Three) But there had been
expectations of stronger consumer spending, helped by falling energy prices.
The report showed consumer spending rose at a 3.1% rate in the quarter. While
that's up from the 2.6% rate in the second quarter, it was less than the 3.5%
forecast by some economists. Wal-Mart
Stores (Charts),
the No. 1 retailer, reported a 7.3% rise in total U.S. sales compared to a year
earlier, although that was helped by its continued increase in the number of
stores. Major retail chains as a group reported even stronger sales gains over
the period. http://money.cnn.com/2006/10/27/news/economy/gdp/index.htm 2. Daniel Gross How Now, Grown Dow? Republicans say the Dow is at an all time high. Not really. “[S]erious
investors don't even use the Dow as much of a benchmark. According to Dow
Jones, between Exchange-Traded Funds, mutual funds, and other products,
"more than $47 billion" is invested in assets tied directly to the
index. That's a tiny figure. The S&P 500, whose constituents represent 80% of the
overall market, is a much more accurate gauge of general market performance. According to Standard & Poor's, some $1.26 trillion
in assets is indexed to the S&P 500. Its breadth likewise
makes it a much more popular benchmark for investors of all kinds. And when you
look at the S&P 500, it's clear that the stock-market recovery is not as
broad as the Republicans would like you to think. Though it has recovered
substantially from its 2002 low, the index is still off
nearly 10 percent from its 2000 peak. As for the tech-heavy Nasdaq 100, which has about $186 billion indexed to
it, it would have to nearly triple
in order to set a record high. So, the claim that "the stock market" is at an
all-time high simply doesn't match most investors' experiences. The distinction between the performance of the Dow and that of the
other market indices is a perfect metaphor for the economy under Bush. Assume
the stock market represents America. The Dow components—the tiny minority of
the richest—are putting up record numbers, while the masses are struggling to
do as well as they did in the late 1990s.” http://www.slate.com/id/2152253/nav/tap2/ 3. Darksyde The Myth of
the Bull Elephant: “The Dow Jones Industrial Average was bouncing around 11,000 in the year
2000. Last week's close was 12,002. So, based on those numbers, after swiping
trillions of taxpayer dollars - borrowed from you and your children - and
tossing it into the gaping bottomless maw of Wall Street's elite like so much
papery green chum, the return on the DJIA during CEO Mastermind George Bush's
reign weighs in at a whopping ~ 1.5% a year or so. In between it took a
steep dip resembling a certain mountain pass in Tora Bora and has regained just
barely enough to rival the interest my credit union pays on a checking account.
Goodness gracious, where will we spend it all? And for you tech investors, the NASDAQ Composite Index hit a high of about 5000 in March of 2000.
It ended the week at 2342. Good grief, you'd have done considerably better if you had sealed the
cash in a tin can and buried it in your yard for the last six years. Were the
NASDAQ COMP a conscious entity in need of immediate medical attention, it might
just give up at this point and opt for a mercy killing, lest the poor thing
suffer another agonizing botched operation under the inept knife wielding hands
of Doc Bush and Nurse Cheney. Now, it would be irresponsible to the point of deception to attribute
market performance solely to a President. But if the GOP is dumb enough to try
and play that game, it's perfectly fair to clock the living shit out of them by
pointing out that under mean old, 'librul,' tax and spend, philandering Democrat
Bill Clinton, the markets turned in healthy double digit gains year after
year.” http://www.dailykos.com/storyonly/2006/10/23/55243/408 4. David
Leonhardt When Jobs are Bountiful and Pay
Isn’t: “Modest rises in
the minimum wage don’t even appear to kill many jobs.” “The recent state increases have created a series of natural
experiments for researchers to study, and they have generally found that modest changes have
only minor effects on employment levels. Some have found no net effect. Higher
wages may end up lifting employee morale and reducing turnover, making business
more productive and mitigating some of the higher labor costs. As Alan S. Blinder, a former vice
chairman of the Federal Reserve, says, “What’s
changed in the last 10 to 15 years is an accumulation of pretty convincing
evidence that the employment problem is not very significant.” The current batch of ballot initiatives isn’t perfect. Three of the six
would enshrine the new wage in the state constitution, which seems a strange
place to discuss inflation indexing (a point that opponents are emphasizing, perhaps realizing
that the old scare tactics aren’t enough). A higher minimum wage also isn’t the
most effective way to fight poverty, because some minimum wage jobs are held by
middle-class teenagers. But Congress and state legislatures have yet to come up
with better solutions, and voters may not be willing to wait for perfection.” http://www.nytimes.com/2006/10/25/business/25leonhardt.html 5. National Bureau of Economic Research (NBER)’s Les Picker International Capital Flows Alter US Interest Rates:
“The authors find that foreign flows have an economically large and
statistically significant impact on long-term U.S. interest rates. Their work
also suggests that large foreign purchases of U.S. government bonds have contributed
importantly to the low levels of U.S. interest rates observed over the past few
years. In the hypothetical case of zero foreign accumulation of
U.S. government bonds over the course of an entire year, long rates would be
almost 100 basis points higher. Were foreigners to reverse their flows and sell
U.S. bonds in similar magnitudes, the estimated impact would be doubled.
Further analysis indicates that roughly two-thirds of the impact comes directly
from East Asian sources. In addition, some of the foreign flows owe to the
recycling of petrodollars, suggesting a mitigating factor that might be
reducing some of the bite of higher oil prices. The authors caution that although they subjected their data to many
robustness tests, it is possible that their results overstate the effects of
foreign flows. One might suspect that other factors not completely captured by
their analysis were affecting interest rates over this period. Still, the facts
they present are suggestive of sizeable effects and are likely accurate given
that foreigners currently hold more than half of the U.S. Treasury bond
market.” http://www.nber.org/digest/nov06/w12560.html |
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