STOCK MARKET WATCH, Wednesday 2 June

[ozymandius]

Wednesday June 2, 2004

COUNTING THE DAYS
DAYS REMAINING IN THE * REGIME 236
DAYS SINCE DEMOCRACY DIED (12/12/00) 3 YEARS, 173 DAYS
WHERE'S OSAMA BIN-LADEN? 2 YEARS, 226 DAYS
WHERE ARE SADDAM'S WMD? - DAY 440
DAYS SINCE ENRON COLLAPSE = 923
Number of Enron Execs in handcuffs = 18
Recent Acquisitions: Jeff Skilling
ENRON EXECS CONVICTED = 2
Other Arrests of Execs = 54

---

U.S. FUTURES & MARKETS INDICATORS
NASDAQ FUTURES-----------------------------S&P FUTURES

---

AT THE CLOSING BELL ON June 2, 2004

Dow... 10,202.65 +14.20 (+0.14%)
Nasdaq... 1,990.77 +4.03 (+0.20%)
S&P 500... 1,121.20 +0.52 (+0.05%)
10-Yr Bond... 4.70% +0.05 (+1.05%)
Gold future... 396.60 +1.10 (+0.28%)


|||


GOLD, EURO, YEN and Dollars

---

PIEHOLE ALERT

Heads Up!
Preliminary info on appearances by Bush & Co. throughout the country. Details & links are added as they become available so check back. And if you know more, are organizing something, or would like to, contact [e-mail]

For information on protests and other actions Citizens For Legitimate Government

---

[ozymandius]

1. Good morning Marketeers.

:donut: :donut: :donut: :donut: :donut:

First of all, my apologies for disappearing without a word yesterday. The boy and I were running late to get out of the house for a day at the zoo. Kangaroos! They have kangaroos!

I did manage to return to the thread last night for a thoroughly enjoyable read.

[ozymandius]

2. WrapUp by Ike Iossif

"The importance of context in interpreting the readings of technical indicators"

During the past six weeks, the popular indices have lost on average about 4%-5%, which represents a rather mild pull-back. On the other hand, many indicators such as the put/call ratio, the McClellan Oscillators, Summation Indexes, and the Arms Index, just to name a few, have reached levels that match or exceed the ones reached at major market bottoms in September of '01, in July of '02, and in October of '02. Consequently, brokers have been busy calling clients and telling them that if past history repeats itself, the markets should rally equally strong and thus investors need to be long in order to avoid missing out on the spectacular capital gains the markets have in store for them.

If you received such an urgent call in the past few days from your broker, but you did not act upon his advice to jump into the equity markets with both feet, you are probably wondering whether you did the right thing. You probably wonder, "How about if he's right? Am I being too cautious at my own expense? After all, as an American I am entitled to 20%-25% capital gains on a yearly basis. Maybe I should reconsider!"

Ladies and gentlemen, if you are having such agonizing, sleep depriving thoughts, I am here to categorically tell you: RELAX, you are not missing out on anything and here is the reason why:

http://www.financialsense.com/Market/wrapup.htm

[UpInArms]

3. daily dollar watch

http://quotes.ino.com/chart/?s=NYBOT_DXY0

Last trade 88.58 Change -0.30 (-0.34%)

http://www.fxstreet.com/nou/noticies/afx/noticia.asp?pv_noticia=1085978517-9e32d306-04108

Forex - Dollar falls below 110 yen in early afternoon Tokyo trade

TOKYO (AFX-ASIA) - The dollar fell below 110 yen in early Tokyo afternoon, with participants in Asia testing the US unit's downside in illiquid market conditions, dealers said

Market analysts said a terrorist attack in Saudi Arabia added to market nervousness over already high oil prices

Dealers said they expect the dollar's bearish tone to remain intact over the short-term, with immediate support seen near 109 yen. "The dollar fell below 110 yen, triggering sell-stops (preset orders to sell the US unit), but I believe buying interest by local institutional investors should support the currency above the 109 yen level," said Koji Fukaya, chief market analyst at Bank of Tokyo-Mitsubishi

At 12.50 pm (0350 GMT), the dollar was at 109.75 yen after trading between 109.69-110.45 yen. It was down from 110.07 yen in Sydney earlier and 110.20 yen in late New York trade last Friday. The euro was at 1.2197 usd and 133.86 yen, trading in ranges of 1.2182-1.2244 usd and 133.74-135.74 yen. This compares with 1.2206 usd and 134.70 yen in late US trade on Friday

The outlook for the dollar remains mixed

"Short-term players seemed to have built long dollar positions over recent sessions, capitalizing on the dollar's weak trend, but I think (the market) positions remain mixed," Fukaya said, adding he anticipates the US unit to trade in a range of 109-114 yen through the end of June

Fukaya said that if US assets such as stocks remain solid, US interest rate increases would attract inflows of capital from foreign investors

"Unless concerns over inflation get serious, (interest rate hikes) should help the dollar over the long-term," Fukaya said. Traders Securities senior strategist Rikiya Takebe expressed a more pessimistic view, expecting the US unit to fall below 109 yen this week, on the back of expectations that foreign investors will actively purchases Japanese stocks and drive up the yen.

...more...

I'm glad that you and your son went to the zoo and saw the 'roos, Ozy. A much better way to spend your day than at the "zoo" of the market :D

Have a Great Day Marketeers!

[54anickel]

8. What illiquid market conditions? Ask the Fed and you shall receive!

Added another 10.5+ billion yesterday in over-night repurchases.

http://www.321gold.com/fed/temp_bank_res.html

Pump it up!!! :evilgrin:

[54anickel]

4. Wow! Look at that final hour push in yesterday's charts. I missed most

of the action again yesterday, but it looks just like a couple of months ago, late arriving "bargain hunters" on the way down to below 10,000 on the DOW. Wonder if we'll see a repeat over the next few weeks.

[54anickel]

6. Ahhh, just went back to double check yesterday's closing blather posted in

this thread -

Nevertheless, participants' conviction was lacking, as exhibited by uninspiring volume levels... These low volume levels exaggerated the market's advance in the final hour of trading, which resulted from late-day program trading and beginning of the month cash inflows...

Well, there you have it! That explains it alright. Didn't the blather once point to a higher open due to the beginning of the month inflows? Then there was that middle of the day increase due to those inflows. Don't they process these recurring things at the same time of day? :shrug:

[54anickel]

5. Is Street Hoping For $50 Crude?

http://www.321gold.com/editorials/ackerman/current.html

With the price of crude strongly on the rise again Tuesday, the stock market somehow eked out a modest gain. The Dow Industrials tacked on 14 points, while the S&Ps rose slightly. A Venutian monitoring Wall Street might have come away thinking that investors were not much concerned about the skyward drift of energy prices. The July contract was up nearly $2 over Friday's close to a new record high of 42.45. Would the alien have guessed that every additional penny at the pump adds $1 billion to U.S. transportation costs. Because I wasn't tuned to the bull marketing channel, I don't know how the talking heads might have imparted a bullish spin to yesterday's developments in the NYMEX pits. But new all-time-highs in the price of oil doesn't sound like bullish news to me. Quite the contrary.

The hidden-pivot runes are saying that crude oil may be about to get even pricier. Basis the July contract, I've projected a minimum 43.80 for the minor bull cycle. But, as I've explained, even a slight overshoot would produce a new target of 47.18. Venutians, take note: If Tuesday's surge in energy prices produced a 14-point gain in the Dow, you can realistically dial in further gains of about 40 points, assuming the July NYMEX contract is bound for the higher of my targets. Then again, applying the quintessentially post-modern theory that too much of a bad thing is never enough, perhaps $47 crude would produce an even larger percentage gain in the Dow. Here's your headline, news editors: "Dow Soars on Hopes for $50 Oil."

The Dumb Money

While black gold may have been off and running yesterday, yellow gold barely got out of the starting gate. Buyers of the metal and of mining shares got fleeced on a deceptively strong opening. When such opening-hour shenanigans greet the new week it is often a sign of further weakness to follow, since Monday-morning market orders lucidly reveal what the weakest players are thinking and doing. Not to take anything away from Barron's, but the Smart Money got that way by fading the dumb money on Monday mornings.

bit more...

[KoKo]

11. This article gave me a chuckle.. I couldn't believe yesterday's market,

thinking about the "old days" when higher oil prices would have been the signal that our economy was going to be in big trouble down the road as the increases wound their way negatively through transportation and therefore fueled increases in prices for goods and services. But, that was the "old market." There's no inflation and no downside no matter how horrendous the news is these days. The recovery is "on target" and life is good except for that "little problem" in Iraq. Even another terrorist attack would probably have the market go through the roof in anticipation of the Fed pumping more liquidity to save the poor investor .

Glad to know that others are shaking their heads wondering what the hell is going on. All signs point to manipulation beyond what the "average" investor can figure out. A "Casino" is too kind a word for this market, these days.

Somebody's making money, but it isn't any of us. :-(

[UpInArms]

7. that "highest in 30 years" ISM report has me

really wondering what that means. So for a comparison on "30 years" of doing business, here's a tale for you:

http://www.zwire.com/site/news.cfm?BRD=1675&dept_id=18171&newsid=11837752&PAG=461&rfi=9

Quick Silver funding cuts could spell layoffs at Delco transit agency

As funding continues to dwindle for a transportation program that operates unserved routes for many welfare-to-work recipients, Ursula Rinas looks at her fleet at Delaware County Transportation and wonders if she'll have to make the first
layoffs in the company's history.

Delaware County Transportation is the major provider of the Quick Silver service in Delaware County. Funded by the state Department of Public Welfare, it shuttles employees from Chester and Darby to employers, such as Fair Acres Geriatric Center in Middletown and UPS in Tinicum.


Local officials, however, wonder how much longer it will last as the state has cut funding for the fiscal year starting in July and plans for program elimination by next July.

And, while a minimum of 200 daily riders would be affected, the cuts would have a domino effect, as Rinas anxiously awaits.

"We've never had a layoff in our company history, which is close to 30 years," Delaware County Transportation's general manager said. "We've got jobs of our own to protect."

<snip>

Quick Silver is funded 35 percent by the employers that are drop-off sites and the rest by the state Department of Public Welfare. It carries 200 people a day over routes not served by SEPTA and during off-hours.

The routes go from Chester and Darby to UPS, Fair Acres Geriatric Center, the Sterling Healthcare and Rehabilitation Center in Media and Brinton Manor.

"We're the only option for these people," said Cecile Charlton, executive director of the Delaware County Transportation Management Agency. "You now have 200- some people who have literally no way to get to work if they don't have a car."

The TMA manages the service for the county, which has been presenting this for eight years. Charlton said they've asked the state for $225,000 to fund this year's portion. She's added that the TMA takes no administrative costs for this program because they want to provide as much service as they can as the state prepares to make severe cuts.

"The funding stands right now to be decreased by 30 percent," Stacey Ward, state Department of Public Welfare, said about this year's allotment.

By next year, she said, the source will be eliminated.

"It is truly frustrating for me," Charlton said. "We need the funding. These are people that are working. It's one of the projects that we do that we see absolute benefits from. Chester is coming back. You don't want to take people and just dump them."

...more...

[UpInArms]

9. Survey: Women greatly fear layoffs

http://www.ajc.com/business/content/business/0604/02women.html

Jackie Awtry has fretted about losing her job for more than a year.

The network technician has worked at just one computer company for the past 13 years, but even the most loyal employees are vulnerable in an industry still reeling from the 2001 bust.

"It's kind of like a dartboard," Awtry said of her company's layoffs. "When it's not merit- based, there's no way to know."

To shore up her financial security, Awtry is attempting to start a wellness center in Kennesaw — in addition to working full time at her day job. "I have to do both to keep things going," she said.

But the long work hours and concern over losing her job — and the prized medical benefits that come with it — have taken their toll.

The anxiety Awtry experiences is widely felt among working women, according to a survey released today by the AFL-CIO, an umbrella group representing the majority of American union members.

The report found that about 71 percent of working women are concerned about losing their jobs, making it one of their top concerns — a marked change from previous years, when more flexible hours and child care were top concerns.

The shift in focus, from so-called perks to core benefits like job security and basic health coverage, reflects the profound change in the economy that has occurred in the eight years since the AFL-CIO began the survey.

In 2000, about 69 percent of women surveyed were not worried about an economic downturn affecting their jobs within the next few years. The terrorist attacks of Sept. 11, 2001, dampened that outlook, but even the 2002 survey didn't portray the widespread paranoia over job loss that is evidenced in the 2004 report.

"What we're seeing more this time is a panic over job loss and the loss of even basic benefits," said Karen Nussbaum, assistant to the AFL-CIO president. "These are not just blue-collar workers.... This is something that has really swept across income and professional categories in a way we just didn't quite expect."

To produce the 2004 Ask a Working Woman Survey Report, the AFL-CIO contracted Lake Snell Perry & Associates to survey 800 women, 18 and older, nationwide in February. The survey results have a margin of error of plus or minus 3.5 percentage points.

In addition to rampant concern about job loss, the survey found that a majority of women are worried about the rising cost of health care and dwindling benefits. The percent of women strongly advocating for legislative action regarding health care costs grew by 24 percentage points in the past four years — outpacing growth in all other policy areas — according to the survey.

"Overall, more people are going without basic benefits," Nussbaum said. "Women tend to be the health care providers in the home, so they are probably more keenly impacted by health care costs."

But Karen Couillard, president of the American Business Women's Association, stressed that men as well as women are being affected by rising health care costs and job loss. She said that universally, workers are having to sacrifice perks and the ideal working situation to stay employed.

...more...

I guess she didn't get the "this a 2000 recession" memo.

[UpInArms]

10. Market is open and numbers and blather at 9:58 EST

Dow 10,218.11 +15.46 (+0.15%)
Nasdaq 1,987.63 -3.14 (-0.16%)
S&P 500 1,122.07 +0.87 (+0.08%)
10-Yr Bond 4.716% +0.012

9:45AM: In tune with futures indications, the cash market is off to a higher open... The favorable bias is largely an extension of the rally seen in the last half an hour of yesterday's session, which catapulted the major averages into positive territory... Contributing to the market's gains in the early going is the lower price of crude oil, which has eased off its record levels set in yesterday's session ahead of tomorrow's OPEC meeting, where output may be raised...

Volume in yesterday's session was light and it remains to be seen whether the same will be the case today, or whether buyers will finally be willing to step out from the sidelines despite the uncertainties served up by the upcoming OPEC meeting and Intel's (INTC 28.09 -0.24) mid- quarter update tomorrow, as well as the Employment report on Friday...

9:15AM: S&P futures vs fair value: +4.0. Nasdaq futures vs fair value: +4.5. Off its best levels of the morning, the futures market continues to point to a higher open for the cash market.

9:00AM: S&P futures vs fair value: +4.2. Nasdaq futures vs fair value: +5.5. The stage remains set for a higher open in the cash market, as futures indications continue to trade near their best levels of the morning. The favorable bias is an extension of the positive trade seen over the last hour in yesterday's session and is being supported by easing in the price of crude oil, as well as upbeat trade in the European bourses.

8:30AM: S&P futures vs fair value: +3.9. Nasdaq futures vs fair value: +5.0. Futures indications continue to trade above fair value, pointing to a higher open for the cash market. The favorable bias comes in the midst of easing in the price of crude oil off its record levels set in yesterday's session....

[UpInArms]

12. U.S. MBA's Mortgage Applications Index Fell 1.2% Last Week

http://quote.bloomberg.com/apps/news?pid=10000103&sid=aPAWQFGeSt34&refer=us

June 2 (Bloomberg) -- U.S. mortgage applications fell 1.2 percent last week, the fourth straight decline, as a measure of refinancing dropped to the lowest level in more than two years.

The Mortgage Bankers Association said its gauge of loan demand fell to 624.6 from 632.4 the week earlier. The refinancing index decreased 6.6 percent to 1583.6, the lowest since the week ended May 24, 2002.

Interest rates have risen almost a percentage point since early March, making it less profitable for homeowners to refinance existing mortgages. Refinancing has fallen 84 percent in the past year, removing a source of cash for homeowners. Expectations borrowing costs will keep rising may be helping lift sales, as buyers lock in mortgages now, economists said.

``The combination of a stronger economy and a rush of activity to beat further increases in mortgage rates is giving a boost to housing demand,'' said Robert Mellman, an economist at J.P. Morgan Securities Inc. in New York.

The index of purchase applications rose 2.2 percent to 459.8 last week from 449.8, according to the report. In January, the gauge reached a record 501.6.

The average rate on a 30-year fixed mortgage fell to 6.24 percent last week from 6.26 percent the prior week, the mortgage bankers figures showed. Mortgage rates tend to move in conjunction with yields on long- term securities such as the 10- year Treasury note.

...more...

[UpInArms]

13. Pay soars for Wall Street executives

http://seattletimes.nwsource.com/html/businesstechnology/2001943824_wallstpay01.html

NEW YORK — It was a good year for the stock market, but it was a very, very good year for the executives of Wall Street financial houses.

Combined pay for 10 top executives at New York City's brokerage and financial firms was up a striking 68.3 percent in 2003 over the previous year as the leading men — yes, they are all men — took home more than $231 million, a review of corporate filings shows.

Citigroup's new chief executive, Charles Prince, could argue that he deserved a bump up after being promoted last year. But even excluding Prince's package, pay for the remaining group of executives was up more than 56 percent.

The only executives who took a cut were American Express Chief Executive Kenneth Chenault and Laurence Fink, who heads the BlackRock investment firm. Internationally based brokerage firms that operate in New York, including Credit Suisse First Boston, UBS and Deutsche Bank, were excluded.

Nationwide, executives at financial firms saw a 78 percent pay increase, according to a newly released study by Pearl Meyer & Partners, a Manhattan-based compensation consulting firm. Compensation at financial firms is up even though average pay across all other industries is down, said Jan Koors, managing director at Pearl Meyer.

The huge rise in top executive salaries comes as Wall Street continues to limit hiring and pursue layoffs, especially in the "back-office" ranks.

Although it is up slightly this year over last, employment in the securities business throughout the country is still down 7 percent from the stock- market peak in 2000. And in New York City, where brokerages, banks and financial firms dominate the economy, Wall Street employment has been the hardest hit, plummeting 21 percent in the same period, according to industry figures.

On the other hand, in terms of profits, Wall Street did well in 2003 after the markets finally had an up year after three down ones.

...more...

[54anickel]

16. Corruption of the Markets

Interesting perspective :shrug:

http://www.gold-eagle.com/editorials_04/hultberg060104.html

The corruption and the investor exploitation, so widespread in the business world today, are being denounced by everyone and understood by almost no one. What is most exasperating is the robotic ignorance with which our U.S. Attorneys, our politicians, and our professorial cheerleaders in the colleges and universities approach this issue.

The rash of corruption, not only on Wall Street, but throughout the entire economy today is said to be inherent in the capitalist system itself. The system of free enterprise naturally leads to malfeasance, our scholars tell us. And thus it is the capitalist system that must be restructured with much stricter regulation from Washington. A laissez-faire marketplace is dangerous because it unleashes individuals to exploit their fellowmen with greed and misrepresentation. What are needed are larger and more powerful bureaucracies to oversee this potential danger to the people. Prosecutors must be given more leeway and less strict guidelines in legal procedures. Bureaucrats must be given increased funding. The State must be enhanced.

This view is totally upside down! Corruption in the markets is not the fault of capitalism; it is the fault of government intervention into capitalism! Government is not our savior; government is our biggest and most nefarious corrupter.

Listen to what Mr. P. Ogden writes about this issue recently: "So Mr. Greenspan wants the corporations to re-establish trust in the markets...by straightening out their ethics and bookkeeping. Well what wonderful role models corporations have in Mr. Greenspan and the FED, and the US Federal Government (especially the Treasury).

"These institutions and their chief executives have for years been actively involved in 'influencing, supporting, making orderly' and in recent years flat out FIXING the markets. Through their departments and practices they interfere with the major stock indexes at key junctures, cap the precious metals markets, run the printing presses at prodigious rates, cancel 30 year government bonds, make extended and excessive rate cuts to manipulate interest rates, manage the financial news, mount astounding levels of debt, and constantly 'adjust' the official inflation and employment indicators to downplay any less than positive news.

more...


Here's another take with some points to ponder. I don't completely agree with either of these articles, but they do provide some food for thought.


http://www.gold-eagle.com/editorials_04/hoy060104.html

TOTALLY SCREWED UP !

Sometimes, I have to pinch myself to make sure I'm not dreaming. For the life of me, I fail to understand how we chose what topics are most important to us in today's world. I believe most of the choices come, as a result of the media's ability to manipulate our attention in the direction of their choosing. Take Martha Stewart for instance, why would anyone believe she is worth the press she has received? How can anyone believe she would risk her whole empire to protect a paltry $250,000 investment in Imclone, at a time when she was worth roughly $500,000,000? I'm sorry but I don't believe she would! I do believe, her prior arrogance finally caught up to her. I believe she made a lot of enemies and they finally took advantage of their chance to bring her down. What about her shareholders? What rights do they have? They are the true victims here! Seems to me, they turned out to be the sacrificial lambs. After all, they got slaughtered! All this over a total $43,000 gain from the sale of her stock, one day, prior to negative news being released. Don't get me wrong, I'm not defending her. I just believe the resources spent chasing Martha would have been much better spent pursuing real criminals. The saddest part of this whole fiasco is the fact that she was never charged with insider trading.

Now we have Dick Grasso. Dick did a good job, maybe even a great job, but let's be real, there is no-way he is worth the money he was contracted to be paid. Spitzer says he was to be paid an amount equal to 99% of the exchanges net profit, in one of the years in question. I thought it was The New York Stock Exchange not The Dick Grasso Exchange! For Dick not to be able to comprehend this is beyond me. For Dick to actually believe he is worth that kind of money, would rank his ego right up there with Martha's. Remember Dick, they got Martha! For him to possibly believe that he is worth that kind of money would be like the NASD trading at 10,000. Although he does look a lot like Quark, from the Star Trek's, Deep Space Nine. That could explain part of his misguided beliefs about profit and his belief in his worth to the exchange. I always thought that Vanna White had the greatest job of all time. She earns her money and she's a lot better to look at.

Likewise, the exact same can be said for the officers and directors of many of our major corporations. Compensation packages of $25,000,000 plus are way out of line. Someone needs to step up to the plate and call them out. I can't believe that no one has ever made an issue of this before. For CEO's and CFO's to receive the pay packages they have is nothing short of blatant theft from shareholders. How come no one is going after these people? Especially, when the corporations have lousy years, and I believe they will have several lean years in the near future! The greedy acts and policies of these officers and directors will not come to an end until it all blows up. Then the witch hunts will begin! But, by then it will be too late to help the shareholders.

Then you have the new dividend tax exclusion. What a joke! If Bush really wants to encourage growth, then why not give the exclusion to the corporations. This would put tax savings in the corporate coffers, these additional funds could be used in a manner that would make our domestic corporations more competitive and technologically advanced. Let's not forget all the new jobs it would create. I mean after all, aren't jobs what it's all about? Oh, I forgot, corporations aren't paying any taxes these days. The exclusion would be wasted on them. Who benefits from the new dividend tax exclusion? The Rich, they are the only ones who truly have any significant investments, outside of tax deferred retirement plans. They are the only ones who will be able to take advantage of any tax reduction. I guess the rich truly know how best to spend our capital versus the corporations themselves. They truly know how to get our money into their pockets. Under their choices we are much better off, aren't we? The spending habits of the rich, truly are our ticket to future growth and prosperity.

more...

[54anickel]

14. Either Betting With The House, Or Against It

http://www.gold-eagle.com/gold_digest_04/ci060104.html

Either Betting With The House, Or Against It...Basically it's your choice, especially as it applies to the economy and financial markets ahead. As you know, the growth of the gaming industry globally over the last half century in this country is a direct message that betting against the house can be very dangerous business. In the gaming industry broadly, the odds lie with the house, not with the individual. How else would these folks stay in business and prosper as they have? And it just so happens that in the real economy of the last four decades at least, betting against the house (US households) has also been a very bad bet. But as we look ahead at both the real economy and the financial markets, we suggest that the current bet either in favor of or against US households just may be one of the most important directional investment bets for years to come. And this really applies to the global financial markets as the US consumer is still the focal point of consumption strength worldwide. This is going to be one of those discussions where we let the pictures do most of the talking. We believe it's meaningful in the current environment to review some of the modern day financial characteristics of "the house", so to speak. After all, it has been this very same "house" that has held up domestic GDP in a big way over the last four years. So, just what has been the price that households have paid to accomplish this Herculean feat over the recent past? And what do current household financial characteristics suggest about what we can expect from households in the years ahead?

With the last revision a few days back, we now know that GDP growth in the first quarter of 2004 continued upon the upward trajectory begun in 2003. Real GDP grew at a 4.4% annual rate in the quarter. Likewise, "the house" continued to do its part in the greater scheme of things as personal consumption expenditures rose almost 4% during the period. What further highlights the important role of households in 1Q economic activity was that although total government spending was up in the quarter in aggregate, state and local spending was down for really the first time in a number of decades. Households were clearly pulling the heaviest GDP load in 1Q. And lastly, it was personal consumption of non-durable items where households really came through in the effort to levitate GDP in the first quarter. Auto sales actually fell in the period. The year over year gain in purchases of non-durable goods, up 5.1%, was the largest increase in twenty eight years. The bottom line is that household consumption hasn't even slowed down to catch its breath. It is clear in the following chart that over the last two decades at least, GDP growth in aggregate owes a very large debt of gratitude to the increasing proclivity of households to consume. Of course how one interprets how this has happened is a key decision point as to either betting with or against the house as we move forward.

big snip - lots of charts>

We constantly hear the chant from the bullish among us that wealth creation has been so significant for households over the last few decades. In the recent Flow of Funds report, household net worth in absolute dollar isolation was quite close to all time highs. But nothing exists in isolation when it comes to the financial markets and economy. The extraordinary bull markets in both common stocks and household residential real estate have been generational in their respective magnitudes over the last 25 years. Simple question. Then just why does household net worth relative to these highly inflated household assets rest near a half century low given the extraordinary gains in asset prices? Simple answer. Because household liability expansion has been even more extraordinary. Simple enough?

Consistently betting against the house in hospitable locales such as Vegas or Macau has been a suckers bet for the general public (non-card counters, professional gamblers, etc.) forever. Betting against the US consumer as a never ending engine of consumption strength has also been a suckers bet for a good long while now. Much longer than we would have ever anticipated. But as we view the current broad US household financial landscape from afar, we continue to ask ourselves for how much longer this will be true. Given the rate of change acceleration in household leverage and deceleration in liquidity and net worth relative to assets over the past four years, accompanied by continued relative softness in domestic wage gains, is the house about to be dealt a losing hand? As a sheer matter of probability and statistics, it's very tough to imagine "the house" in the US being a huge winner ahead. Greenspan has been comping penthouse suites for the high rollers among leveraged households for a good while now. Will an ultimate change in casino management end up sending these folks to the buffet line in the basement at some point? Given that virtually everything human runs in cycles, you can bet on it. The problem, of course, is the timing in terms of knowing when to initiate or double down on a bet against the house. The Fed has stacked the odds in favor of the house in absolutely historic fashion over the last three to four years. Foreign central banks have been completely complicit in this exercise. But are these folks running out of complimentary chips, or have they palmed yet another ace to be played if needed? In Vegas or Macau, it is rare to ever see the house bust. Unfortunately in the real world, this is the exact and consistent history of those living under fiat monetary systems.

[54anickel]

15. In Memoriam: The Mini-Bull Market

http://www.gold-eagle.com/editorials_04/rostenko060104.html

Stocks came back to life last week as all the major indices posted substantial gains. The dollar gave up quite a bit of ground while gold continued to climb, finishing out the week with a new 1-month high. Meanwhile crude oil futures reversed from earlier gains to close under $40.

This week we wax a bit more philosophical. The market, still trapped primarily in back & forth neither-here-nor-there action for months, isn't offering much to inspire our usual fare of stimulating prose and keen (ok, comical) insights.

While last week's gains might have been impressive, let's get some perspective. The S&P 500 hasn't seen a new high since early March. The Nasdaq Composite: not since late January. The major indices remain in intermediate-term downtrends, in well-defined patterns of lower highs and lower lows. From a technical perspective, so far we haven't seen any action indicating that new highs are forthcoming.

My expectation that we're in the midst of a major topping formation remains unchallenged, at least by the market. In fact, the "action behind the headline action" continues to point toward a major distributive pattern that typifies major market tops.

According to the Vickers Weekly Insider Report, corporate insider have been selling stock at a furious pace throughout 2004. Fourteen billion dollars worth in the first four quarters. David Coleman states that insider sales have NEVER been higher, since the company started tracking the data in 1971.

Ask yourselves this, folks: why are the people most intimately familiar with their own company's prospects unloading stock at an unprecedented pace? If you believed in the future of your stock would YOU be selling it?

more...

[54anickel]

17. OPEC tries to assuage fears as oil hits record

http://www.iht.com/articles/522980.html

snip>

Ali al-Naimi, the Saudi oil minister, said his country's oil facilities were "very secure," but he and other ministers cautioned that an increased oil supply would not guarantee sustainable lower oil prices.

OPEC is meeting formally Thursday to consider lifting supply quotas by 2 to 2.5 million barrels daily, or by up to 11 percent.

snip>

The weekend attack stoked worries in the markets that many more foreigners, especially in the upper echelons of the Saudi state oil company, Aramco, might leave Saudi Arabia now, possibly affecting production levels, according to Roger Diwan, managing director at PFC Energy, a Washington consulting firm. Industry analysts said some expatriates, in a variety of businesses including oil, were already leaving, and that fears of supply disruptions have added a "risk premium" of $6 to $10 to the price of every barrel of oil.

"The question is, will they be able to attack oil facilities?" Diwan said. "We don't know. It's much easier to attack a compound than a facility, and the fact that they haven't attacked one should be reassuring. But the fact is that you will see more violence against civilians, foreigners and non-foreigners, no doubt."

Saudi Arabia is widely expected to throw its oil taps wide open in an effort to push prices down. Disagreement within OPEC about proposed increases in production quotas has kept the Saudis' plans from doing much good so far, Elguindi said, and it may be making matters worse by revealing a level of disorganization and fragmentation within the cartel that traders do not want to see right now.

more...

Oh yeah, I've got warm fuzzies after reading this. :eyes:

[Frodo]

26. OPEC Members Should Pump at Will, Qatar Minister Says

June 2 (Bloomberg) -- OPEC should pump oil at will in the next few months, Qatar's energy minister said as the group's president called for efforts to cause a ``significant'' drop in record oil prices.

The Qatari, Abdullah bin Hamad al-Attiyah, said OPEC is near a consensus to boost its output quota by 2.5 million barrels a day, or 11 percent, a plan also backed by Kuwait. Saudi Arabia, the world's biggest oil exporter, will ensure markets have enough supply, said the nation's oil minister, Ali al-Naimi.

``Everybody should produce what they want over the next few months,'' al-Attiyah said in an interview in Beirut, where OPEC meets tomorrow. ``We do not want to see any shortage of supply at all, and we want to avoid shocks.''

Members of Organization of Petroleum Exporting Countries outside of Saudi Arabia are producing as much oil as they can in a bid to prevent higher energy costs from damaging a recovery in the world economy. Canadian Prime Minister Paul Martin said the Group of Eight nations should lobby OPEC for more oil.

Concern of potential attacks on Middle East oil installations and of U.S. refining bottlenecks have inflated prices by $10 a barrel, the Qatari minister said. Crude oil was at $41.85 a barrel in New York, down 48 cents, after reaching a record of $42.45 earlier in electronic trading. Brent crude slid 57 cents to $38.51 a barrel as of 1:32 p.m. in London.


--- More ---

http://quote.bloomberg.com/apps/news?pid=71000001&refer=home&sid=aHYsXeITnM5Q

[UpInArms]

18. Market Numbers and blather at 11:07 EST

Dow 10,207.61 +4.96 (+0.05%)
Nasdaq 1,981.29 -9.48 (-0.48%)
S&P 500 1,119.83 -1.37 (-0.12%)
10-Yr Bond 4.734% +0.030

11:00AM: A slight rebound for the major averages over the past half an hour, although the Nasdaq and the S&P 500 are maintaining their stance in negative territory... The semiconductor group, which had earlier been the only laggard of note, has been joined by the disk drive and oil services sectors... The latter's decline coincides with a $0.43 pullback in the price of crude oil to $41.90/bbl...

The decline comes on the heels of yesterday's record highs for the price of crude oil and is being supported by comments from Qatar's energy minister who has joined calls from Saudi Arabia, Kuwait, Indonesia and the United Arab Emirates for more supply... Note that OPEC's widely-anticipated meeting is tomorrow, although it remains to be seen whether the cartel will, indeed, raise output and how much of an effect a potential increase would have on lowering the price of oil as supply remains at its lowest levels in years...NYSE Adv/Dec 1630/1311, Nasdaq Adv/Dec 1301/1463

10:30AM: New session lows for the major averages, as the S&P 500 joins the Nasdaq in negative territory, while the Dow maintains only a fraction of its earlier gains and is hugging the flat line... The semiconductor sector continues to spearhead the decline, with the SOX index down 2.6% at this juncture... Among the laggards of note are Xilinx (XLNX 34.77 -1.58), KLA Tencor (KLAC 46.40 -1.31), and Maxim (MXIM 49.49 -1.22)...

Also in the red is Altera (ALTR 22.12 -0.71) on the heels of its mid-quarter update, where the company stated that Q2 is tracking at the high end of its expectations of revenue from $260.0-265.0 mln... Intel (INTC 28.02 -0.31) is lower ahead of its mid-quarter update tomorrow...

[54anickel]

21. HA! Yeah the comments from Qatar's energy minister were a real

comfort, weren't they?

http://quote.bloomberg.com/apps/news?pid=10000100&sid=aLLeFLYvKioY&refer=germany

snip>

``Everybody should produce what they want over the next few months,'' said Qatar's energy minister, Abdullah bin Hamad al- Attiyah in an interview in Beirut, where OPEC meets tomorrow. The Organization of Petroleum Exporting Countries, the producer of a third of the world's oil, wants to prevent higher energy costs from crimping economic growth.

``OPEC has made it clear they will make an effort to lower prices by either raising or suspending quotas,'' said Tom Bentz, a broker with BNP Paribas Futures Inc. in New York. ``Most members are producing at capacity so it's not clear how much oil will actually be available.''

[54anickel]

19. Debt Bubble Stretches to Breaking Point

http://www.thestreet.com/_tsccom/funds/jubak/10163016.html

Should we stop worrying that the debt bubble created by the Federal Reserve since the 2000 market crash could still burst?

No way. Just the opposite, in fact. My three rules of bubbles, identified and explained here, say we're approaching the most dangerous period in the life of any bubble: the time when it is most in danger of breaking.

I know it's tempting to stop worrying about the debt bubble that was created as the Fed tried to moderate the effects of the market crash and the terror attacks of Sept. 11, 2001. The parts of the U.S. economy most sensitive to interest rates are showing few signs of crumbling in the face of the huge increase in 10-year Treasury yields since March 12 (the yield Friday was at 4.66%), and amid increasingly clear statements from the Fed that it will raise its target interest rates this year.

Sales of existing homes are running near a record pace. Consumer spending keeps chugging along, at an annualized rate of 5% in April, and retail sales climbed by an annualized 4.5% in the first three weeks of May. Even car sales are holding up; in the first four months of 2004, auto sales were up 3.1% from a year ago.

But the Three Rules of Bubbles tell me that it's too soon to stop worrying. We've hardly begun to correct the distortions that cheap money has created. Instead of deflating gradually as interest rates have started rising, the bubble has continued to swell in many sectors. The level of financial risk in the economy is still climbing.

So what are these three rules?

more...

[54anickel]

20. Fed buys bills to add permanent reserves

http://www.forbes.com/personalfinance/funds/newswire/2004/06/02/rtr1392000.html

NEW YORK, June 2 (Reuters) - The Federal Reserve said on Wednesday it was adding permanent reserves to the banking system by buying Treasury bills dated Sept. 23, 2004 to Dec. 2, 2003. :shrug: Typo?

The closing time for the operation is 10:30 a.m. EDT (1430 GMT) with delivery set for Thursday, June 3.

Earlier, the Fed added temporary reserves to the banking system through overnight repurchase agreements.

The Fed funds rate was last trading at 1.063 percent, slightly above the Fed's 1.0 percent target for the rate.


Isn't this the monetization of debt that Bernanke mentioned - the helicopter drops where the Fed buys the T-bills?

[UpInArms]

24. really confusing to me

the link in the Forbes article got me a "404" - but chasing through the Fed site got this:

http://www.ny.frb.org/markets/permanent.html

Permanent Open Market Operations


Monetary policy can be implemented through outright purchases or sales of securities, which permanently changes the size of the Federal Reserve's System Open Market Account (SOMA) portfolio.

Bill Pass - 6/2/2004

Close: 10:30am
Delivery: Thursday, June 3, 2004
Range: 9/23/2004 - 12/2/2004

No Exclusion

Total: $1.4 billion

[54anickel]

25. Well, it's interesting at any rate. Gotta wonder,

"What's it all about, Al-l-l-lie.
Is it just for the moment we live?"

[54anickel]

22. Stepping out for a while again, hope to be able to check back in for

a wee bit here and there throughout the day.

Have a great day at the Casino Marketeers!

[54anickel]

23. Wow, look at the cliff in the gold chart just after 11:00 am. What's that

all about now? The buck hasn't moved, yet anyway. :shrug:
Maybe something to do with the Fed buying T-bills? Oh yeah, that's a big comfort for the dollar - NOT. :evilgrin:

http://quotes.ino.com/chart/?s=FOREX_XAUUSDO&v=s

[54anickel]

27. Visa delays costing U.S. firms billions

http://msnbc.msn.com/id/5120779/

WASHINGTON - Corporate America has suffered $30.7 billion in lost revenue and other costs over the past two years as a result of delays in visas for foreign business travelers, according to eight U.S. business organizations.

The finding marks the first serious effort by U.S. business to quantify the impact of security restrictions put in place since the September 11 terrorist attacks.

A survey, to be published on Wednesday, found that nearly three-quarters of companies had experienced unexpected delays or arbitrary denials of business visa applications, while 60 percent said the delays had hurt their companies through increased costs or lost sales.

In addition, more than half the 734 companies surveyed said the visa process was worse today than a year ago.

more...

[UpInArms]

28. Market Numbers and blather at 12:07 EST

Dow 10,201.09 -1.56 (-0.02%)
Nasdaq 1,979.17 -11.60 (-0.58%)
S&P 500 1,118.93 -2.27 (-0.20%)
10-Yr Bond 4.724% +0.020

12:00PM: The market has spent the session slipping steadily lower, with the Nasdaq and S&P 500 skidding into negative territory, while the Dow has been able to hold on to a fraction of its earlier gains... Although retreating, the S&P 500 has been able to stay above its 50-day simple moving average at 1117, which has limited losses for the market thus far... Nevertheless, among the laggards of note are influential sectors such as networking, semiconductor, disk drive, gold, broker/dealer, iron & steel, and oil services...

The latter's decline coincides with a $0.77 drop in the price of crude oil to $41.56/bbl, which comes on the heels of new record highs set by the price of the commodity yesterday and in the midst of calls from Saudi Arabia, Kuwait, Indonesia, Qatar and the United Arab Emirates for more supply... Tomorrow's widely-anticipated OPEC meeting will reveal whether the cartel will raise output and how much of an effect the potential increase would have on lowering the price of oil, as supply remains at its lowest levels in years... Like yesterday, today's volume has been relatively unimpressive, speaking to a lack of conviction on the part of participants...

Hesitation is, certainly, warranted given the uncertainties associated with tomorrow's OPEC meeting and Intel's (INTC 27.97 -0.36) mid-quarter update, as well as Friday's Employment report... Elsewhere, the bond market has continued to reverse last week's gains, with the 10- year note down 5/32, bringing its yield up to 4.72%..

[KoKo]

29. Good reading here, as usual. Bubbles, Debt and all the "cautionaries."

At least Jubak doesn't think a "bubble pop" will be as bad as 2000, more a slow unwinding. But, who knows since there are more bubbles than in 2000 according to some analysts.

[UpInArms]

30. Discounting Drives U.S. Auto Sales in May

http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=5324964

DETROIT (Reuters) - U.S. automakers, using heavy discounts to lure consumers into their showrooms, posted strong sales in May as consumers, unfazed by surging gasoline prices, seized on generous cash rebates and other deals to buy new cars and trucks.

Among the gainers in May, DaimlerChrysler's (DCX.N: Quote, Profile, Research) (DCXGn.DE: Quote, Profile, Research) Chrysler division said its sales rose 5 percent, buoyed by demand for the Chrysler 300, the company's new flagship sedan. And Nissan Motor Co. Ltd. (7201.T: Quote, Profile, Research) said U.S. sales jumped 28.4 percent, on strong demand for its Titan full-size pickup truck.

Ford Motor Co. (F.N: Quote, Profile, Research) , hurt by an aging vehicle lineup and seen its sales drop all but one month so far this year, said vehicle sales fell 3.1 percent in May.

While Ford vehicle sales slipped in May from a year earlier, the automaker's adjusted sales were up 1 percent after accounting for one fewer selling day in May this year and excluding its foreign brands.

But other automakers announced mostly upbeat results. With all leading companies reporting by Wednesday afternoon, industry analysts said they see May sales coming in at a seasonally adjusted annual rate of about 17 million.

<snip>

Rising interest rates and the debt-heavy position of many potential car buyers were also seen as factors deterring sales.

But automakers responded by ratcheting up already high consumer incentives, particularly on big pickups and sport utility vehicles, sacrificing profits to help cut bloated inventories.

...more...

and here's one with the incentives spelled out:

http://www.freep.com/news/latestnews/pm20092_20040602.htm

Ford, Chrysler report on May sales

excerpt:

At Ford, sales were down 25 percent at Land Rover, 22 percent at Lincoln, 10 percent at Volvo, 8 percent at Jaguar, 5 percent at Mercury and 1 percent for the Ford brand. Despite that the company noted that sales of the new Ford F-Series pickup remained strong and were up 4 percent for the month.

<snip>

The Chrysler division spent an average of $4,321 per vehicle on incentives in May, about $810 more than in May 2003 and $120 more than the prior month, according to CNW Marketing Research, Inc., in Bandon, Ore. That is one of several independent companies that evaluate incentive spending, which the automakers do not release.

Meanwhile, the Detroit-based GM, which ramped up its Truckfest incentive program, spent $4,322 per vehicle on incentives in May, and Ford spent $4,297, CNW reported. Overall, the industry spent $3,784 per vehicle on the deals last month, up $476 , or 14 percent, from the same month last year.

[54anickel]

32. Is that tax break for businesses still in effect? The one that gives you

a write off on trucks larger than either 1/2 or 1 ton? My "nephew-out-law" took advantage of that last year for his lawncare business. A couple of other folks around town (Dr. lawyer types) used the incentive to get their baby hummers.

[Frodo]

33. I think it recently got BIGGER.

But I don't have a link.

[UpInArms]

31. Market Numbers and blather at 2:31 EST

Dow 10,277.25 +74.60 (+0.73%)
Nasdaq 1,995.53 +4.76 (+0.24%)
S&P 500 1,126.95 +5.75 (+0.51%)
10-Yr Bond 4.716% +0.012

2:00PM: Market continues to work its way higher, although the advance seems to have been capped at 1123 for the S&P 500 - the same place over the last three sessions the broader market has stalled... The broker dealer group has lagged behind today, just as it has since the March employment report came out (+337 in nonfarm payrolls) and investors began to speculate that June could be when the Fed would start to tighten... Goldman Sachs is out with a cautious note on the brokers today, saying that Q2 will mark the first quarter of a new down cycle in Return on Equity trends...

The firm expects this down cycle to be fueled by declines in fixed income trading revenues, which it does not believe will be fully offset by growth in M&A and equity-related businesses...NYSE Adv/Dec 1796/1392, Nasdaq Adv/Dec 1482/1535

1:30PM: Equities improve their stance incrementally, but continue to trade close to the unchanged mark... May auto sales from DaimlerChrysler (DCX 44.43 +0.16) and Ford (F 14.85 -0.19) have been released, and the results have been rather disappointing... DaimlerChrysler AG reported a 1% increase in sales and Ford delivered a 3.1% decrease - both below most analyst estimates... The domestic autos had been predicting a pick-up in spring sales - coming off a weak winter - and thus far, the numbers have been less than expected...

The slowdown in sales, combined with the worry that a less favorable interest rate environment would hurt profitability in each company's financial division, has weighed on the group all year... The Big 3 are down 12% year-to-date, compared to flat for the S&P 500...

Those "disappointing auto sales" sure boosted the market!

[54anickel]

34. UK Fund Managers Start To Get Real: Will US Investors Follow?

http://www.prudentbear.com/internationalperspective.asp

“It seems as though Mr. Greenspan thinks there is nothing that printing money won't solve. If printing money created real wealth, then Zimbabwe would be one of the richest countries on the face of the earth. My thesis is we have really not paid the price for the excesses of the late 1990's.”
– Paul Kasriel, Director of Economic Research, Northern Trust Chicago

UK pension funds may switch as much as $270 billion out of equities into other assets, such as bonds over the next three years to help ensure that pension fund liabilities are met in future years, according to research published last week by the Investment Management Association (IMA), a trade body. The survey covered a total of 113 member firms which oversee some 7 trillion pounds sterling of assets for clients worldwide, including the 10 biggest fund managers in the UK, which together account for some 46 per cent of total assets under management in the country.

Over the past 20 years, UK pension funds have been an enormous source of support for London’s equity market, as well as those abroad, given the overall size of the asset pool and the huge commitment to equities. Consequently, decisions made in London today clearly have implications across the pond as well. Are we seeing the first signs to that a hitherto well-entrenched cult of equities is slowly dissipating?

Any mass sale of stocks would clearly have a dramatic impact on global equity markets, unless overseas and private retail investors were to fill the gap. No doubt, analysts from the City of London and Wall Street will be hard at work to develop theories to rationalize current substantial holdings in equities and thereby hold the tide at bay (at least until the world’s central bankers come to the rescue again).

If one looks at time honored measures of assessing UK stocks – the familiar tools like price to earnings ratios, price to book ratios, and dividend yields – today’s levels probably represent an outlier in terms of valuation: high, but nothing like the extremes still manifested in the US market. It is all the more striking, therefore, that the trend toward diminishing investment in equities is coming from the UK, rather than the US, although perhaps the Bank of England’s ongoing efforts to rein in the consumer credit bubble by through its repeated rate increases since last November is giving pause to underlying economic assumptions hitherto used to justify large-scale equity investments. Their concomitant attempt to act like a real central bank, which is serious about dealing with the threat of incipient inflation pressures clearly has the added virtue of making bonds a reasonably attractive alternative to the investor otherwise concerned that the country’s monetary authorities would aggressively resort to the electronic printing presses.

more...

[UpInArms]

35. Greenspan: Rate-Hike Likely to Be Gradual

http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=5325383

WASHINGTON (Reuters) - Slack in the U.S. economy and low inflation should allow the Federal Reserve to raise interest rates at a gradual pace, Fed Chairman Alan Greenspan said in a letter released on Wednesday.

"The current backdrop of low inflation and underutilized resources suggests that the transition to a more neutral policy stance can be undertaken at a pace that is likely to be measured," Greenspan said in a May 14 letter to Sen. Paul Sarbanes, which was released by the Maryland Democrat.

Greenspan noted that the Fed's policy-setting panel had also indicated that the central bank could likely pursue a "measured" pace of rate hikes in a statement after its last meeting on May 4.

The Fed chief was responding to a question Sarbanes had posed at an April 21 hearing of the congressional Joint Economic Committee about the pace and cumulative magnitude of past rate-hike cycles in which the central bank had increased borrowing costs substantially.

In his testimony to the panel, Greenspan had said the fast rate at which U.S. businesses had been able to increase their productivity had held down labor costs as measured against output, helping restrain inflation.

"That means that the price pressures are not anywhere near what they would be under normal circumstances," Greenspan had said of the sharp productivity gains. "When you look at the past, the issue of addressing a particular potential inflationary problem has got to take into consideration all of the various elements involved in that current situation."

...more...

[Frodo]

36. I wonder....

The purpose of rate increases is to slow the rapid growth of the economy, right? To avoid rampant inflation preasures?

Might rising gas prices be serving the same purpose?

[UpInArms]

38. but wouldn't that be considered inflationary? ........eom

[Frodo]

40. Not necessarily.

People often mistake "price went up" for "inflation". Inflation causes increasing prices, but price changes are not, in themselves, "inflation".

I was listening to Bob Brinker just a couple weeks ago and he was actually saying the opposite. Higher gas prices impact personal disposable income... that's anything BUT inflationary. or so the theory went.

[UpInArms]

41. well, explain then what you said (typed) yesterday

regarding the increased cost of production that is related to higher transportation costs.

That leads to the need to raise prices to cover the increased costs - that is inflationary? No?

But if it's only on the consumer level, whereby it impacts the spending habits because of the higher cost of gasoline, that is not inflation (if I understand what your post was meant to say).

[Frodo]

42. But that was yesterday?

Surely you don't expect me to be consistant? lol


Inflation is too much money supply chasing too few goods. One of the symptoms of that is higher prices. But higher prices don't in themselves force inflation.

If demand for my product increases and I decide to double my prices that isn't because of the money supply. The effect to the consumer of my product is the same, but the way you treat it economically isn't.

Look at milk prices last month. They shot up for reasons almost entirely unrelated to "inflation". It was a combination regulatory/supply problem.

To the extent higher gas prices stifle economic activity, they can actually act against inflation by changing behavior.

It's one of the reasons (supersimplified) the CPI doesn't match the deflator.

In direct answer to your question. Yes, higher gas prices and the associated trasnportation expenses will, in a vacuum, impact CPI (which many people substitute 1:1 for "inflation").


Was that a wiggly enough answer? :-)

[54anickel]

37. A Grotesque Misnomer

http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=32995

Economic growth now depends crucially on the strength of wealth and profit creation. Mr. Greenspan and the bullish consensus economists claim that America is enjoying its highest rate of wealth creation in history - through rising asset prices.

Fed members are claiming that this is a perfectly normal transmission mechanism of monetary policy. This is an outright lie. Never before have inflating asset prices been a key driver of real economic activity.

To be sure, asset prices have always risen in the early stages of a cyclical economic recovery in response to monetary easing. But such increases do little or nothing to boost economic growth.

snip>

And what really happens to incomes and debts in the case of so-called wealth creation through appreciating asset prices? Nothing at all. Generations before us never thought of it as wealth creation. This new attitude arises principally from a general convention to consider total outstanding assets of a certain category as being worth the price of the last trade, however small that trade may have been. Clearly, small trades have tremendous capitalization effects. For good reasons, such so-called wealth creation is not practiced in most countries.

In Japan's case, the principal beneficiaries of the asset bubbles in the late 1980s were industrial and real estate businesses. In the U.S. case, it is the consumer. But in order to enjoy the wealth effects of rising stock and housing prices, the American consumer had to encumber himself with soaring debts in order to afford the price-driving asset purchases.

For Mr. Greenspan and the bullish consensus it is a virtuous circle, as the overall gains in capitalized asset prices have outpaced the rise in debt levels. Implicitly, the big net gain in asset values can be used as collateral for borrowing, which funds higher spending for consumption.

more...

[UpInArms]

39. Closing Numbers and Hoo-Haw

Dow 10,262.97 +60.32 (+0.59%)
Nasdaq 1,988.98 -1.79 (-0.09%)
S&P 500 1,124.99 +3.79 (+0.34%)
10-Yr Bond 4.730% +0.026

Close: It was another roller-coaster day for the market, which spent the first half of the session on a track of fresh session lows, but only to recover the entirety of its losses in an afternoon rally that saw the major averages close within a short reach of their respective session highs... The drift lower through the morning was largely the result of a lack of leadership to the upside and participants' hesitancy ahead of tomorrow's OPEC meeting and Friday's Employment report, reflected in the light volume totals ... Yet, at their worst, losses were only mild...

Accordingly, encouraged by a steady decline in the price of crude oil, the market rallied through the afternoon... The price of crude oil dropped over 5%, or $2.37 to $39.96/bbl as oil ministers from several countries, including Qatar, Saudi Arabia, Algeria, Kuwait, and United Arab Emirates reiterated their commitment to vote for increased supply of crude oil at tomorrow's OPEC meeting, with the Kuwaiti Minister saying he sees prices falling $6-8/bbl in 2-3 weeks...

Because of the drop in crude oil prices, sectors including transportation and airline rallied, with groups such as hardware, REIT, chemical manufacturing, and casino & gaming also being among the leaders to the upside... Laggards of note, in the meantime, included the semiconductor, disk drive, networking, oil & gas services, metal mining, and gold sectors... Elsewhere, the bond market closed with losses across its yield curve and the 10-year note down 9/32, bringing its yield up to 4.74%...