STOCK MARKET WATCH, Monday 7 June

[ozymandius]

Monday June 7, 2004

COUNTING THE DAYS
DAYS REMAINING IN THE * REGIME 231
DAYS SINCE DEMOCRACY DIED (12/12/00) 3 YEARS, 178 DAYS
WHERE'S OSAMA BIN-LADEN? 2 YEARS, 231 DAYS
WHERE ARE SADDAM'S WMD? - DAY 445
DAYS SINCE ENRON COLLAPSE = 928
Number of Enron Execs in handcuffs = 18
Recent Acquisitions: Jeff Skilling
ENRON EXECS CONVICTED = 2
Other Arrests of Execs = 54

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

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AT THE CLOSING BELL ON June 4, 2004

Dow... 10,242.82 +46.91 (+0.46%)
Nasdaq... 1,978.62 +18.36 (+0.94%)
S&P 500... 1,122.50 +5.86 (+0.52%)
10-Yr Bond... 4.77% +0.06 (+1.32%)
Gold future... 391.70 +2.80 (+0.72%)


|||


GOLD, EURO, YEN and Dollars

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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. WrapUp by Tim W. Wood - Global Trouble Looms

THE DOW REPORT
Global Trouble Looms

A few weeks ago I talked about the broadening top formation that is unfolding in the Dow Jones World Stock Index. It is now time to follow up on this chart as well as the progress of the pattern. When I first mentioned this index and this formation I warned that it meant we not only have issues with the US markets, but that we could potentially be on the brink of seeing the next leg of the Global bear market. This pattern has thus far unfolded pretty much by the book. My friend Tony Cherniawski has also recently written several detailed articles about this pattern and its formation in this index and others. But, I want to examine this pattern from a cyclical perspective.

In the orthodox broadening top you generally see a series of three higher peaks and two lower lows. This is then followed by a breaking of the lower trend line, as was seen in May, a move back up into the pattern followed by a hard decline once this rally back into the pattern has completed. In this particular incident, the two higher peaks normally seen in an orthodox pattern, have not occurred. It would appear that this index is so weak that the higher peaks have failed. The break into the May low served to break the lower trend line and the rally out of the May low has served as the bounce back rally into the pattern. Based on the traditional interpretation of this pattern we are now at the inflection point.

-cut-

We have been operating under a Dow theory sell signal since March. The decline into the May low carried the Industrials below the intermediate term low that was made in March. Because of the Dow theory sell signal this was expected and was obviously a very bearish development for the Industrials. Since the March low, the Transports have been stronger. As you can see, the Transports held above their March lows. As of this writing both averages have remained below their April highs. We are now due to see the short term cycle move down. Violation of the May lows by the Industrials and of the March lows by the Transports will reconfirm the Dow theory sell signal.

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

[54anickel]

23. A China Trade Deal for the Yuan to Float?:

(whoops, meant to reply to main thread post)

http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_derosa&sid=aArvM5on6kdU

June 6 (Bloomberg) -- China is petitioning the U.S. to grant it ``market economy'' status, something that would lead to lowering U.S. duties on a wide variety of its manufactured goods. Common sense would say this has absolutely no chance of happening, especially in the midst of an election year.

Dai Yunlou, a minister counselor at the Chinese Embassy, brought up market economy status last week in Washington at a U.S. Department of Commerce hearing.

``The fact is that China has changed and changed a lot,'' he said. The country has moved away ``from complete reliance on state-owned and collective industrial enterprises to a mixed economy.''

Fine and good, Mr. Minister -- the more China becomes a market economy the better for China and the better for the whole world. Your timing though is lacking. This is an election year, and, rightly or wrongly, the fur is flying over lost U.S. jobs to foreign competition.

snip>

China's giving up the peg could soften opposition from U.S. manufacturing interests, who soundly oppose lowering trade barriers for Chinese goods, ranging from televisions to steel pipes.

It's interesting that the hottest trade issue surrounding China isn't the duties per se, but the exchange rate regime China maintains for the yuan.

snip>

Good and Bad Citizen

There's a certain hypocrisy about this outrage. When the dollar was rising, roughly from mid-1995 to mid-1999, China won kudos from all quarters, in the U.S. and from abroad, for not devaluing the yuan and, therefore, exacerbating the economic crisis that then plagued Southeast Asia. Nobody was talking about China manipulating its currency, yet the same process guided the exchange rate for the yuan as it is today.

more...

[ozymandius]

2. Storm Watch Update - MOVING TO CENTER STAGE

The San Joaquin Valley is looked upon as a symbol of success, a melding of modern capitalism and ingenuity that has produced an agricultural miracle. The region's abundant crop output is dependent on mechanization, which in turn is dependent on cheap fossil fuels. But this success is overshadowed by enormous environmental problems that increasingly confront our 21st century world. Cheap energy, water scarcity, soil erosion, land becoming too compacted and salty for farming, and fertile soils plowed over by asphalt point to a clash between nature and urbanization. The San Joaquin Valley needs energy and water. Without these two natural resources, the miracles of the valley disappear. Energy has become more expensive from the fertilizers that are made from oil to the diesel fuel that powers the tractors and the semis that move the crops to market. In some areas of the valley pinched Kern County farmers are considering selling a part of their water allocations to the state’s thirsty Metropolitan District. It may become more profitable to sell water than farm crops.

-cut-

The Clash of Two Worlds
The problems that confront the San Joaquin Valley are the same problems that confront other agricultural regions around the world. Water and energy are moving to center stage and are likely to remain there for the balance of this century. A clash between nature and urbanization is about to unfold. At stake is an industrialized world dependent on growth to support its rising debt levels and an emerging world hell bent on industrializing. Both worlds require energy, water, and food to support a population base that has grown from 3.5 billion humans to today’s 6.4 billion in three decades.

-cut-

Global Population Demands

Demand for commodities is global and it is structural. A population of 6.4 billion people growing by 400 million a year is something that goes beyond the debate of inflation or deflation. A recession, depression, wide scale debt default, or a stock market crash doesn’t eliminate the daily dietary and energy needs of 6.4 billion people. As far as the thought of a recession or stock market crash eliminating the energy crunch, think again. A 1,250 pound steer requires an investment of 283 gallons of oil. This includes the fertilizer to grow the corn that feeds the steer to the diesel that powers the machinery that runs the farm. <5> Water, energy, and food are basic necessities—not luxury goods that can be bought with discretionary income. Economists and analysts need to distinguish between what goes into the weekly grocery basket versus a discretionary decision to eat out.

-cut-

And Then There's Energy Issues

Energy prices are also acting as an additional tax on the economy. Gas prices seem to go up every week. Up until recently, occasional energy spikes have been looked upon as a nuisance, a temporary problem that has to be endured until more supply is brought on line. I don’t believe that this time the problems are temporary. The real problem is “depletion,” a concept that very few on Wall Street understand. While markets appear hopeful that Saudi Arabia’s increased output will soon reach the market, it will be too late for this summer's driving season. As consumers, we will have to grin and bear the higher costs of getting to and from work or a summer holiday. If fuel costs don’t relent in their price rise soon, travel—whether for business or a holiday—may soon become a luxury. In addition to featuring nightly complaints from consumers, our local news station now features stories of families limiting their driving and shopping due to higher fuel costs. In my own family, two of my sons are actually considering hybrid cars rather than the hot cars their peers drive. The local news station—in addition to featuring nightly complaints from consumers—now features stories of families limiting their driving and shopping due to higher fuel costs.

http://www.financialsense.com/stormwatch/oldupdates/2004/0604.html

[mhr]

14. He Is Really Talking About Peak Oil And The End Of Petroleum Man

Websites of interest include:

http://www.lifeaftertheoilcrash.net/Home.html
http://globalpublicmedia.com/
http://www.oilcrash.com/running.htm
http://www.wolfatthedoor.org.uk/
http://www.durangobill.com/Rollover.html
http://www.asponews.org
http://www.gulland.ca/depletion/depletion.htm
http://www.dieoff.org/
http://www.oilanalytics.org/
http://www.greatchange.org/
http://www.oilcrisis.com/
http://www.after-oil.co.uk/
http://www.hubbertpeak.com/
http://hubbert.mines.edu
http://www.museletter.com/archive/cia-oil.html

Books:

Out of Gas: The End of the Age of Oil
by David Goodstein

The Party's Over: Oil, War and the Fate of Industrial Societies
by Richard Heinberg

Hubbert's Peak : The Impending World Oil Shortage
by Kenneth S. Deffeyes

The Last Hours of Ancient Sunlight : Waking Up to Personal and Global Transformation
by Thom Hartmann

The Oil Factor: How Oil Controls the Economy and Your Financial Future
by Stephen Leeb, Donna Leeb

News Groups:

Energy Resources
http://groups.yahoo.com/group/energyresources/

Alas Babylon
http://groups.yahoo.com/group/AlasBabylon/

Running on Empty
http://groups.yahoo.com/group/RunningOnEmpty2/

[ozymandius]

3. Good morning all.

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

The in-laws are still in town so I will be scarce today. I plan to spend more time here tomorrow as events calm down a bit. Play safe at the Casino!

Ozy

:hi:

[UpInArms]

4. daily dollar watch

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

Last trade 88.24 Change -0.30 (-0.34%)

http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=5355736

Dollar Hits 2-Month Low Vs Euro

TOKYO (Reuters) - The dollar dipped to a two-month low against the euro on Monday as investors took profits after data showed robust gains in U.S. jobs, reinforcing prospects for an interest rate rise later this month.

The U.S. economy added 248,000 new non-farm jobs in May according to data released on Friday, above the median estimate of 216,000 in a Reuters survey. April's number was also revised upward to 346,000 from 288,000, surprising the market.

"The U.S. jobs data was stronger than expected, but not exactly spectacular, and not enough to change expectations that the Fed will raise rates by 25 basis points this month," said Toshiaki Kimura, forex manager at Mitsubishi Trust and Banking.

A poll of 22 top economists on Wall Street, taken after the jobs report, was unanimous in forecasting the Federal Reserve will raise benchmark interest rates by 0.25 percentage point from a 46-year low of 1 percent at a policy meeting on June 29-30.

The survey showed that speculation for a bigger 0.50-percentage point rise had receded.

"It has become clear that the Fed will raise rates later this month," said Kota Kimura, assistant forex manager at Shinkin Central Bank.

"But we still don't know the pace of the Fed's tightening after that. It's even harder to know how money will flow. So I don't think a clear trend will emerge."

...more...

http://quote.bloomberg.com/apps/news?pid=10000103&sid=a3RCxpCvhv20&refer=us

Dollar Falls a 4th Week Versus Euro; Traders Expected More Jobs

June 5 (Bloomberg) -- The dollar fell a fourth straight week against the euro and dropped against seven other major currencies after U.S. job creation for May disappointed some traders.

The economy added 248,000 jobs last month, a ninth straight month of gains and better than the median estimate of 225,000 from 73 economists surveyed by Bloomberg News. The growth was less than some traders had anticipated, however. Businesses were expected to have added 255,000 jobs, an auction of derivatives showed.

``People were too optimistic going into the report,'' said Larry Brickman, a currency strategist in New York at Banc of America Securities LLC. There was ``a bit of unwinding'' of bets on dollar gains, he said.

Against the euro for the week, the U.S. currency dropped 0.5 percent to $1.2282 at 5:08 p.m. yesterday in New York, according to EBS, an electronic currency-dealing system. The dollar also fell on the week against currencies including the Canadian dollar, Swiss franc and British pound.

The yen dropped for the first week in three, by 0.9 percent to 111.19 per dollar, amid speculation China, Japan's second- biggest export market, is moving closer to raising interest rates to cool its economy. The same concerns led the Australian and New Zealand dollars to losses of 2.6 percent and 1.7 percent, respectively.

A jump in the price of crude oil to a record above $42 per barrel on Wednesday also undermined the yen. Japan imports all of its oil. Crude finished the week at $38.49 in New York after OPEC said it would boost production.

`Headline Disappointment'

Yesterday's employment report left intact expectations the Federal Reserve will raise its target interest rate by 25 basis points, or 0.25 percentage point, this month, while it wasn't enough to boost expectations for a larger, half-point cut, said traders.

``There's a little headline disappointment -- the numbers aren't strong enough to revise expectations to 50 basis points for June,'' said Jeremy Fand, senior proprietary currency trader in New York at WestLB AG, Germany's third-biggest state-owned bank by assets. ``That would have got the dollar really moving.''

...more...

Have a Great Day Marketeers!

[UpInArms]

5. GM to invest $3B in China

http://money.cnn.com/2004/06/07/news/international/gm_china.reut/

BEIJING (Reuters) - General Motors, the world's top automaker, will invest over $3 billion in China in the next three years to more than double capacity, declaring it will overtake leader Volkswagen AG.

GM, now a distant second to Volkswagen in the world's fastest- growing car arena, plans to introduce almost 20 models over three years in a country that should become its second-largest market in 2004, executives said Monday.

Brushing off signs the market may slow drastically this year as Beijing curbs easy lending to cool overheated parts of the economy, GM said Chinese growth would outpace mature markets.


Car sales nearly doubled in 2003 after breaking the million mark for the first time in 2002. But growth slowed to 45 percent in the first quarter and a further deceleration could worsen a margin-sapping glut and spark a price war, analysts say.

Multinationals plan to spend about $13 billion to build capacity to make some six million cars annually in coming years.

"We believe that by doing what we've been doing, GM can ultimately claim the largest share of this crucial market," the company's China head, Phil Murtaugh, told reporters.

"To be honest, margins in China are going to come down. But I'm not sure it's accurate to call it a price war," Murtaugh said ahead of this week's Beijing Auto Show.

Prices have already slid 10 percent on average this year. One Hong Kong-based auto analyst foresaw a deluge of cars forcing another 10 percent price cut in the second half.

GM itself cut prices in May on two of its core models -- the Buick Regal sedan and the GL executive wagon -- by as much as 11 percent, anticipating lowered import tariffs next year.

Even after the cuts, the Buick Regal sells in China for about $40,000, which is around $15,000 more than in the United States -- largely because of taxes in China and heavy incentives in the United States.

...more...

[UpInArms]

6. and here is another very interesting article

http://news.independent.co.uk/world/middle_east/story.jsp?story=528710

Militants strike at Saudis' weakest point

As oil prices become ever more volatile, Mark Hollingsworth examines US dependence on the increasingly vulnerable regime

excerpt:

The militants are all too aware that no country is more dependent on cheap Saudi oil than the US. The House of Saud has repeatedly wielded its surplus oil capacity as a political weapon. Less than 24 hours after the September 2001 attacks on New York and Washington, the Saudi royal family authorised the distribution of nine million barrels of oil to the United States over two weeks. This ensured that America experienced only a slight inflation increase and stabilised its economy after the most devastating terrorist atrocity in its history. During the 1991 Gulf War, the country produced an extra five million barrels a day. The Saudis also keep an estimated $1 trillion (£550bn) on deposit in US banks and another $1 trillion or so in the stock market. If they were to suddenly withdraw their investments, it would have a catastrophic impact on the US economy.

In return, the regime expects the US and Britain to protect them from Islamic insurgents and neighbouring states, sell them weapons in deals producing huge kickbacks to senior royals and turn a blind eye to serious human rights abuses. But the sudden vulnerability of the oil infrastructure has placed this insidious relationship under threat.

"Although Saudi Arabia has more than 80 active oil and natural gas fields and a thousand working wells, half its proven oil reserves are contained in only eight fields," said Robert Baer, who served for 21 years with the CIA's Directorate of Operations in the Middle East. "Confidential scenarios have suggested that if terrorists were simultaneously to hit only a few sensitive points from these eight fields, they could effectively put the Saudis out of the oil business for about two years."

That could conceivably mean crude oil, which has been trading at more than $40 per barrel, doubling or even trebling in price. Recent Saudi assurances that the oilfields are well protected are sceptically received by expatriates who had also been assured of their personal safety.

...more...

[54anickel]

7. Oh my, the last 4 paragraphs are interesting as well -

The 9/11 tragedy should have been a wake-up call to the US, since 15 of the 19 hijackers were Saudi nationals. During the previous decade Saudi Arabia had transferred over $500m to al-Qa'ida via Islamic charities, according to a UN Security Council report, but when Saudi intelligence refused to allow the FBI to interview Saudi suspects, President Bush did nothing.

The Bush family's financial links to the Saudi royal family are exemplified by George Bush Snr's lucrative consultancy with the Carlyle Group, a multibillion-dollar investment firm whose raison d'être is business with Saudi Arabia. And the Saudi ambassador to Washington, Prince Bandar, has spent tens of millions of dollars on Washington lobbyists, lawyers and PR consultants to peddle influence and deny that his country funds Islamic terrorism.

Some argue that America can now afford to be far less dependent on Saudi oil, pointing out that it provides only 18 per cent of the crude oil the US consumes. But Saudi not only exports more oil than any other country, it has more reserves - 25 per cent of world supplies - and possesses the world's only important surplus production capacity. It remains the world's most powerful low-cost oil state. By merely turning on or off the taps, it possesses considerable economic power, and hence global political influence.

That gives the Saudi royals real negotiating power when they deal with the Oval Office. Washington still needs the House of Saud as much as they need Washington to preserve their power and wealth.

[54anickel]

9. Is the world's oil running out fast? (Peak oil conference)

http://news.bbc.co.uk/1/hi/business/3777413.stm

The end of cheap oil

It includes a diverse range of oil industry insiders.

People like Ali Bakhtiari, head of strategic planning at Iran's National Oil Company (NOIC), Dr Colin Campbell, a former executive vice president of Total-Fina, and Matthew Simmons, an energy investment banker and adviser to the controversial Bush-Cheney energy plan.

They are united by one idea, that global oil production is about to peak, which in turn will signal the permanent end of cheap oil.

And they warn that this is the foundation of the current rise in oil prices.

Who hurts when prices explode?

"Oil is far too cheap at the moment," says Mr Simmons.

"The figure I'd use is around $182 a barrel. We need to price oil realistically to control its demand. That is because global production is peaking."

more...

[54anickel]

37. East Asia Makes Plans for Oil Emergency

http://www.nytimes.com/aponline/business/AP-Asia-Energy-Meeting.html

MANILA, Philippines (AP) -- Facing runaway oil prices and security fears, East Asian officials meeting in Manila will make emergency plans that included creating oil reserves and finding alternative sources for their energy imports.

Energy ministers from Japan, China, South Korea and the 10-member Association of Southeast Asian Nations, or ASEAN, will emphasize the need for oil stockpiling, with Japan and South Korea providing technical help, according to draft documents for the Manila meeting obtained Monday by The Associated Press.

``We recognize the importance of oil stockpile for supply security,'' said a draft of a joint statement, expected to be issued Wednesday.

The ministers also are calling for better sharing of oil data, more oil trade within Asia, dialogues and partnerships with producers outside the region, and investment in alternative energy sources such as natural gas.

They want to bolster the dissemination of clean coal technology, and said coal is an abundant and economical energy resource in this region -- which is becoming the world's largest consumer of energy.

Philippine Energy Secretary Vincent Perez, the meeting's chairman, told reporters that officials would discuss why Asian buyers pay about $1.50 per barrel more for Middle East crude oil than those in Europe or the United States.

Mideast producers have been accused of capitalizing on Asia's heavy reliance on Gulf crude amid a lack of competing sources of supply. Asia accounts for 40 percent of world oil consumption.

more...

[54anickel]

8. Stocks - the Big Picture

Interesting graph at the end of this article. It also reminded me of how the S&P has been credited with "supporting" the other indexes in so much of the blather these last couple of months. Could this also be what the Fed has been seeing in it's crystal ball as it ratchets up the money supply for more liquidity?

http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=33060

snip>

What's Next?

Since the chart pattern that is the subject of this essay was first observed in 2001, the term constrained randomness could definitely be used to describe the powerful and, so far, measurable forces at work in the stock market. Should it continue to work out, the ultimate low for the S&P would be around 400 in August, 2008.

Now "everyone" knows that senior central banks are doing their utmost to sustain current speculation in both tangible and financial assets. The term speculation should be emphasized because a significant loss of price momentum will force the next liquidity crisis. At critical junctures, a few interventionists have not been successful in materially altering all of financial history. One of the most obvious examples is that even in its most reckless mode in the 1990s, the senior central bank did not extend the consistent duration of a financial bubble or, when it was acting responsibly, it did not shorten the duration of the 1873 bubble.

Will the S&P continue to follow the "model"? As on any observed recurring patterns, our conclusions have been that there is no guarantee that the phenomenon will continue to work out. Then again, there is no guarantee that it will not.

It is best to consider the odds. After all, if financial history had been materially altered we wouldn't have enjoyed the greatest bubble ever.

more...

[54anickel]

10. Focus to Shift in Fund Probes

http://www.latimes.com/business/la-fi-funds7jun07,1,3486089.story?coll=la-headlines-business

Round 1 of the mutual fund industry scandal, the storm over abusive trading practices, is coming to a close.

Round 2 is expected this summer and promises to pack more punch with small investors — because it will focus on whether the industry and major brokerages have been in unholy alliances to push certain funds.

For state and federal regulators, the new legal cases they are pursuing are likely to involve alleged industry wrongdoing that is more complicated, and harder to prove, than the accusations of market timing and other improper trading that have been in the headlines for the last nine months.

Round 2 also may see the spotlight shift from East Coast fund companies to West Coast giants, including Los Angeles-based Capital Group Cos., which manages the American Funds, and San Mateo, Calif.-based Franklin Resources Inc., which manages funds under the Franklin and Templeton brand names.

more...

[54anickel]

11. Global: The Mother of All Carry Trades

http://www.morganstanley.com/GEFdata/digests/20040604-fri.html#anchor0

Everyone does it — borrow short and invest long. With the overnight lending rate well below the inflation rate, the cost of money is essentially “free” in real terms. All it takes is reinvestment anywhere else along the yield curve to make a positive return from the spread, or carry, trade. By holding the nominal federal funds rate at a 40-year low of 1%, the Federal Reserve has aided and abetted a multiplicity of carry trades — from those in the Treasury market, to high-yield and emerging-market debt, to credit instruments and mortgage securities. It’s the rage. You can’t afford to miss the carry trade — until, of course, the Fed takes away the proverbial punch bowl.

The American consumer has put on the biggest carry trade of them all. In a job- and income-short recovery, consumers have defied the fundamentals of consolidation and kept on spending. Consumption has soared to a record 71% of GDP in the past two and a half years, well in excess of the 67% share of the 1990s; moreover, during just the past year, the Y-o-Y growth rate of real consumption expenditures accelerated sharply from 2.3% in 1Q03 to 4.3% in 1Q04. Income short consumers have turned, instead, to two exogenous sources of purchasing power — a steady stream of tax cuts and the extraction of equity from their favorite asset, the home.

The asset-based impetus to consumer spending is nothing more than a huge carry trade. Taking advantage of rock-bottom interest rates, American homeowners have embarked on a record mortgage-refinancing bonanza. By some estimates, the equity extraction that has resulted from this frenzy exceeded $550 billion in 2003, or more than 6.5% of disposable personal income. I should note that this estimate is based on the simple difference between the change in mortgage debt and net investment in residential housing — a gauge that Dick Berner has criticized as a macro-analytical tool (see his August 1, 2003 essay, “Why the ‘Refi’ Bust Won’t Cripple Consumer Spending”). Notwithstanding his critique, Dick concedes that refis have been an important source of consumer purchasing power in recent years. And with good reason: The temptation of low interest rates and ever-rising property values simply proved irresistible to income-short US households. This was a sure-fire way to make ends meet in tough times.

The only catch in this sure thing is the means by which it occurs — debt. The American consumer has never — repeat, never — gone on a debt binge the likes of which has occurred in recent years. Household sector debt now exceeds 85% of GDP — an all-time high and about 20 percentage points higher than the ratio a decade ago. The common refrain to this complaint is that consumer debt ratios have always risen over time as households have become wise in the ways of sophisticated balance sheet management. Moreover, there are many who argue that consumers are being entirely rational in turning to debt in a low interest rate climate; after all, goes the logic, with rates at 40-year lows, it seems inconceivable that debt service could ever become onerous.

Think again. Debt service measures published by the Federal Reserve are already flashing warning signs. The Fed now has two official gauges of household debt burdens — a narrow measure of mortgage and installment debt payments and a broader measure of financial obligations, which also includes auto lease payments, residential rents, and homeowners’ insurance and property tax payments. Even with interest rates at 40-year lows, both of these debt burden proxies are in the upper decile of historical experience. The reason: the sheer magnitude of the stock of outstanding indebtedness.

more...

[KoKo]

20. 54, I can't get the link to Morgan-Stanley article to work. Do you have

a better one?

BTW: Both the financial and International/National news this a.m. is :nuke: What a terrible time we live in...just my headached comment from reading so much bad news everywhere.

[54anickel]

24. Haven't found another link to it, but it's working OK for me right now.

[KoKo]

31. It works now. I think it was some computer troubles I was having this a.m

:-)'s

[54anickel]

12. Wither the Dollar

http://www.321gold.com/editorials/benson/benson060404.html

Virtually all market analysts and financial writers are single-mindedly focused on the Fed raising the price of money and credit. The market is constantly told to fear the Fed tightening. Meanwhile, we are in the middle of one of the largest increases on record in the quantity of money as measured by M3. From the start of 2004, M3 has increased at an 11% rate, or almost $400 billion. At this rate of growth, M3 should surpass $10 Trillion over the next 12 months. While the Fed already has the markets and future interest rates priced for a 1/4 point rise in the Fed Funds rate in June, and another 1/4 point rise in August, the markets are not focused on the inflationary consequences of the massive increase in the supply of money or its downward effect on the value of the dollar.

The Fed has turned the "financial bubble machine" back on. First, they wanted to put a quick end to the unwinding of the "reflation trade" which was causing a spike in bond prices and a strengthening in the dollar. This put the financial markets close, once again, to a crash. Second, the Fed needs to play the last policy cards - beneficial to the economy and the current Administration - to use the direct creation of money to:

1) tempt a reopening of the reflation trade; 2) keep inflation running higher than nominal interest rates; 3) push real interest rates even lower; and 4) use the raw creation of dollars to weaken the dollar. Given the law of supply and demand, a rapidly rising supply of dollars will lower their value, if everything else remains the same. The Fed has just created $400 Billion of fresh money so surprise, surprise - the value of the dollar is moving down!

Moreover, everything isn't all "smiles and roses" for the dollar. The fundamentals causing the falling value of the dollar are:

i) record trade deficits and inflation rising faster than interest rates; ii) a slowing U.S. economy as the tax cuts and mortgage REFI's are petering out; iii) Europeans unable to cut interest rates on the Euro below 2% now that their inflation is up to 2.5%, and, most critically, iv) explosive U.S. money growth.

Why is the Fed so interested in letting the dollar go? Other than for political reasons, a falling dollar helps domestic firms compete abroad and actually hire more Americans. Moreover, a falling dollar means that more Americans are likely to buy goods made in America. In addition, we are entering vacation season and travel is a big business. More foreigners will come to America to avoid the "bomby" weather in Athens for the Olympics and many Americans will remain in the 50 states for their summer holiday.

more...

[54anickel]

13. The Fed Cannot Fix Itself

http://www.mises.org/fullstory.asp?control=1540

In his speech on May 20, 2004, a Fed Governor, Ben Bernanke, argued in favor of a gradual approach to interest rate policy settings. According to Bernanke, because policy makers do not have precise knowledge of how the economy will respond to a given change in interest rates it is logical that policy makers should proceed cautiously.

In other words, inadequate knowledge regarding how the economy works makes it appropriate for policy makers to adjust policy more cautiously and in smaller steps than they would if they had precise knowledge of the effects of their actions.

Furthermore, Bernanke holds that the gradual approach allows central bank policy makers to have greater influence over long-term interest rates. This in turn permits the Fed to have more direct influence over the future course of the economy. In other words, he holds that long-term interest rates are driven by the expectations of financial markets participants about the likely future course of short-term interest rates, which are in turn closely linked to expectations regarding the federal funds rate.

Consequently, according to Bernanke,

In a gradualist regime, an increase in the federal funds rate not only raises current short-term rates but also signals to the market that rates are likely to continue to rise for some time. Because they reflect the whole path of expected future short-term rates, under a gradualist regime long-term rates such as mortgage rates tend to be relatively sensitive to changes in the federal funds rate. Thus, gradualism helps to ensure that the FOMC will have an effective lever over economic activity and inflation.<1>

It would seem, therefore, that the formula for making the economy healthy is to make the central bank's policies transparent and predictable. According to Governor Bernanke, it would appear that transparent policies are good for the health of the economy because this doesn't disrupt the fluctuations of relative prices of goods and services. Consequently it is held that this allows the economy to move along the path of stable economic growth.

Although Bernanke believes in a market economy, he doesn't trust the notion that the economy can look after itself. There are always various shocks that can throw it off the stable growth path and pose a threat to the economy's well being. He believes that it is the role of the central bank to put the economy back on the right path because without the Fed's intervention the economy could even fall into a black hole.

more...

[54anickel]

15. IGNORANCE IS BLISS

(Midway down the page from the Daily Reckoning)

snip>

And probably the most astonishing feature...the biggest go..o..lly of all...is this: the past quarter of a century could not have been better for the U.S. We defeated the Soviet Union without a shot. We invented the Internet. We enjoyed the biggest stock market boom in history. During that time we must have gotten richer, right?

Wrong. And here you might want to make sure you're all sitting down. Because the average man in America now earns 6% less than he did in 1977. Is that progress? Is that getting rich?

He thinks he is richer because his house is worth more. But this is an illusion. He has to live somewhere. He can sell his house, but he'll only have to buy another. The real measure of how rich a society is...or how valuable a company is... is how much it earns. And earnings, in the world's biggest, most dynamic, most flexible, most high- tech, most forward-looking and most innovative economy went exactly nowhere over the last 25 years!

Clearly something is wrong. The American consumer economy has turned out to be a fraud. It doesn't work. It doesn't make Americans richer, it makes them poorer. It puts them deeper in debt and more dependent on the kindness of strangers than ever before.

In the last 25 years, the nation has been transformed. A quarter of a century ago, we were a nation of producers. Now we consume more than we produce. We were a nation of savers. Now, we spend more than we make. We were a nation to which the rest of the world owed money. Now, we're the ones who owe money overseas - more money than any people ever owed in the history of the world.

But the biggest transformation is the way we Americans think. We used to watch the money supply figures, for example, and get excited. Now, the money supply is growing at an alarming rate - 20% per year, annualized from the last 4 weeks' figures. But no one seems to notice or care. We used to worry about inflation. We used to be amazed, alarmed and astonished by all manner of things.

But now, we know better. We're all super-sophisticated know-it-alls who never, ever say 'go..o..lly' about anything. Nothing shocks us. We're in awe about nothing. We know everything with work out. We know there's nothing to worry about because we live in the most dynamic and flexible economy in the world. And we know Alan Greenspan is on the job, making sure that we grow richer and richer, day after day, forever and ever, amen.

We, the humble, on the other hand...we have no idea what will happen. But we think, sooner or later, something will happen. And we think it will take our breath away.

[54anickel]

16. Dr Mahathir: Use yen as East Asia’s trading currency

My "buddy" is still at at :evilgrin:

http://www.thestar.com.my/news/story.asp?file=/2004/6/3/nation/8124886&sec=nation

TOKYO: Japan should stop trying to prop up the US dollar and instead make the yen the trading currency of East Asia, said Tun Dr Mahathir Mohamad.

While noting that it was understandable for Japan to continue to shore up the US currency because it holds a lot of dollars in reserve, the former Malaysian Prime Minister warned that it could not “go on forever.”

“The US must maintain the value of its currency by reducing its huge deficit and living within its means.

“Whatever Japan does, its yen is bound to appreciate against the US dollar.

“What it means is that Japanese goods have become expensive for South-East Asia. They cannot compete with some American goods, but more significantly with Chinese goods.

“This is not healthy. This is the result of using the US dollar as a trading currency and valuing other currencies against it,” said Dr Mahathir in his speech entitled East Asia Community and the Role of Japan at Keio University here yesterday.

The university had earlier bestowed an honorary Doctorate of Law on him.

Dr Mahathir suggested that the Japanese currency be used to replace the US dollar as the trading currency for East Asia and in return the region agreed on a trading currency backed by gold.

“East Asian countries need not have an East Asian currency for domestic use as the euro is in the European Union. To give it reference value against currencies of countries of East Asia, we can base the East Asia Trading Currency on gold.”

more...

[Frodo]

17. What just happened to the 10-yr treasury?

??? I'm not sure I've ever seen a spike that big.

[54anickel]

18. The Terror Factor

http://www.321gold.com/editorials/chapman_d/chapman_d_060704.html

snip>

So will this announcement make any difference? In the short term it will take some of the speculative fever out of the oil price but with oil increasingly a strategic commodity not only is the US trying to rebuild reserves, China, India and others are also trying to build their reserves because of the concern about possible supply disruptions. Irregardless this will keep pressure on oil prices. That coupled with the firm and growing demand in China and India coupled with very little in the way of new supply coming on the market would have ensured that prices would rise over time anyway.

The insurgents are not about to go away. To dismiss them as terrorists seems far too simplistic. To think that all of this is driven by some guy running around in the mountains of Tora Bora actually boggles the imagination. The truth is that a corrupt and privileged elite rule a country where unemployment is rising and incomes are falling and there is no room for nary a liberal voice. The only real opposition is religious conservatives who are learning from the insurgents in Iraq that you can take on a more powerful force and demoralize them. That is not new either as the Russians found out in Afghanistan and before them the Americans in Vietnam.

So expect the terror factor to return. And expect our own complicity to continue by continuing to put the emphasis on security of supply rather than focusing on energy savings. Saudi Arabia is not the only potential hot spot as things remain problematic in Nigeria and there is continued potential for instability in Venezuela. But is all of it in the cards anyway? Our charts have continued to indicate that near term at least the targets for oil are $55 to $58 and longer term at least $70. Oil has been climbing in a very bullish pattern. If instead we had gone straight up as we did in 1990 at the time of the Gulf War 1 then we would agree that can not hold. But the weekly chart of oil clearly shows a bullish stair step fashion.

There is huge expectation now that the OPEC increases have been announced that energy prices have peaked. But oil installations in Saudi Arabia and other Gulf producers were not built for security. So they remain highly vulnerable to attacks, as does the human infrastructure of foreign workers that supports the oil industry. Instructions have been issued to foreign workers to get out of Saudi Arabia. A number of the insurgents in the recent attacks actually escaped and there were a report that some were in Saudi military uniforms suggesting that the use of deception to gain access to sensitive areas is in play. Of course deception is an old trick and has been used for years with great success by in particular the Israeli Mossad whose motto is "By way of deception, thou shalt make war." Even though reserves are being rebuilt a severe supply disruption remains a serious risk.

But Saudi Arabia is not the only place where the terror factor may play. Homeland Security recently announced that there is a very high probability of a terrorist attack in the United States in the coming months. The announcement was premised that the intelligence was that Al Qaeda had specific intentions to attack the US hard. Coming of course after the attack in Madrid on March 11, 2004 (oddly 911 days after the September 11, 2001 attacks taking out the leap year) the announcement has to be taken seriously. Of course once again the thought of someone running around the mountains of Tora Bora directing a major terrorist attack leaves a lot to the imagination.


snip>

The third terror factor is not really a terrorist attack at all but what we call monetary terror. It is the massive growth in money supply (M3) seen thus far this year. Figures to the end of April suggest growth in M3 could exceed $1 trillion this year alone. Recent numbers have been on pace for the equivalent of $2 trillion. In an article by Robert McHugh (Financial Markets Forecast and Analysis - May 30, 2004) he has suggested "that by raising money supply (M3) by crisis proportions. What awful calamity do they see? Something is up. Unprecedented, unheard of pre-catastrophe M3 expansion."

We don't doubt that the Fed is acting irresponsibly by setting the conditions that allow an increase in M3 at this very high rate. But the Fed only has direct control over M1 (as does the Bank of Canada). The remainder comes in the banking system and can be driven by sharp increases in loans whether it is by consumer credit, mortgages or business loans. We await these numbers which we suspect have increased sharply of late.

Still it puts a lot of money awash in the system and it can wind up in the stock market to help continue fuel a stock market rise and it can help continue to fuel the housing bubble and some of it can actually help in creating more jobs which have been reflected in the job numbers. That a big chunk of them remain in the service sector that could be here today, gone tomorrow remains a negative. And the risk of interest rate increases remains high where Fed Funds futures have now priced in a 100% chance of a rate hike by the end of June.

more...

[54anickel]

19. 10:58 numbers and yada

Dow 10,323.01 +80.19 (+0.78%)
Nasdaq 1,993.36 +14.74 (+0.74%)
S&P 500 1,130.51 +8.01 (+0.71%)
10-yr Bond 4.803% +0.029
30-yr Bond 5.478% +0.014

NYSE Volume 310,731,000
Nasdaq Volume 417,051,000

10:30AM : The market maintains the bulk of its earlier gains, although the major averages have slipped off their earlier highs... While there are no sectors showing losses of more than 1%, the biotech group's negative stance is notable given the favorable developments coming out of the ASCO conference... Specifically, while OSI Pharmaceuticals (OSIP 76.72 -1.81) and Genentech (DNA 56.79 -2.82) announced better than expected results for the Tarceva drug, both are selling on the news since the positive results were largely anticipated...
Merrill Lynch's upgrade of OSIP to Buy from Neutral is not doing much for the stock... Separately, the Nasdaq is trading near the psychologically significant 2000 mark, although it has been unable to clear it for now... Should the Nasdaq lift above the 2000 mark in a convincing fashion, the market may see broader buying efforts...NYSE Adv/Dec 2226/630, Nasdaq Adv/Dec 1836/858

10:00AM : The major averages are stacking on more gains, as buyers have stepped out of the woodwork... Early indications are for convincing volume, which would be a nice change versus last week's unimpressive totals... The bulk of the sectors are supporting the advance and trading in positive territory... Leaders to the upside include the internet, networking, semiconductor, hardware, disk drive, software, gold, transportation, broker/dealer, airline, cyclical, materials, coal, iron & steel, and casino & gaming groups...

Laggards of note are hard to come by, although the biotech sector is showing mild losses... The S&P 500 is currently leading the advance and is outperforming the Dow and the Nasdaq on a relative basis...NYSE Adv/Dec 1842/683, Nasdaq Adv/Dec 1672/801

9:45AM : As predicted by the futures market, the cash market is off to a higher open... Positive carryover from Friday on the heels of a better than expected Employment report is among the factors contributing to the early gains... Also supporting the advance are gains in overseas markets, the declining price of crude oil, as well as the favorable developments out of the ASCO conference, where biotech players such as Imclone (IMCL 77.31 +4.82) and Millennium (MLNM 15.03 +0.15) reported upbeat reports...

Separately, the casino & gaming group should be among today's leaders due to speculation in the midst of MGM Mirage's (MGM 45.25 +0.72) offer to acquire Mandalay Resort Group (MBG 72.44 +12.17) for $7.65 bln... There were no economic reports in the pre-open, but the Consumer Credit report will be announced at 15ET...



Advances & Declines
NYSE Nasdaq
Advances 2279 (73%) 1839 (63%)
Declines 685 (22%) 936 (32%)
Unchanged 148 (4%) 143 (4%)

----------------------------------------------------------------------

Up Vol* 222 (86%) 274 (74%)
Down Vol* 32 (12%) 91 (24%)
Unch. Vol* 3 (1%) 5 (1%)

----------------------------------------------------------------------

New Hi's 69 54
New Lo's 4 18

[54anickel]

21. Bonds dip, dollar weakens

http://money.cnn.com/2004/06/07/markets/bondcenter/bonds/

NEW YORK (CNN/Money) - Bond prices fell in early trading Monday, taking short-term yields to fresh two-year highs, as stronger global stocks drew funds from an otherwise featureless fixed-income market.

snip>

Trading volume was thin as investors await appearances by Federal Reserve Chairman Alan Greenspan on Tuesday and Thursday. Markets are anxious to hear if he sticks to the recent line that inflation is not yet a danger and thus the tightening cycle can be measured. Any departure from this stance would likely hurt bonds badly.

Traders were equally keen to hear if the Bond Market Association will recommend the market close on Friday in honor of former President Ronald Reagan. President Bush has already declared a Federal holiday, which may interrupt the data calendar, and the BMA was meeting to decide if the bond market should also shut.

The market also has to absorb auctions of five- and 10-year paper, expected to amount to around $25 billion, on Wednesday and Thursday respectively. Traders will be inclined to cheapen the issues to ensure decent demand, though most recent sales have tended to go well.

snip>

He noted custody holdings of Treasurys kept by the Fed for foreign central banks had climbed by over $30 billion in May even though the Bank of Japan had ceased intervening to buy dollars in the currency market.

Despite the optimism over the auction, the bond market remains in an overall bear trend and speculators were using gains in equities as an excuse to sell Treasurys.

[54anickel]

22. Payrolls Not Strong Enough for the Dollar

http://www.forexnews.com/ai/default.asp?f=A20040604A.mgn

The dollar's tepid showing following the strong May employment is due to the following:

1. Unlike the March and April reports, which produced payroll growth nearly twice that of consensus forecasts, today's release came in line with the revised consensus forecasts, which were upped to 240K from 215K. Thus, March payrolls grew by 308,000 (before the revisions), beating expectations of 100,000-130,000. The April payrolls rose 288,000 (before the revisions), beating expectations of 168,000-180,000.

2. The US dollar is no longer boosted by expectations of a 25-bp June hike, which has been priced in the market (90% probability) for over 3 weeks. Instead, the dollar requires stronger economic data, which would further augment expectations for an August rate hike. This is relevant especially considering the 3% decline in the dollar index since May 14. Thus, in order for the currency's sentiment to turn back up--especially in the speculative community-- the strength of the economic data must be far more overwhelming for speculators to open fresh longs in the dollar. At present, euro net longs remain at their highest level in 4 months, when the single currency stood at all time highs.

3. Despite the breadth in the increase in payrolls, the much-scrutinized 3-month average of payrolls fell for the first time in 6 months. In the 3 months ending in May, payrolls retreated to 297,000 from 316,00 in the 3-month period ending in April. The question now remains whether US businesses continue to lift the pace of hiring as the stimulatory effects of the fiscal and monetary easing are diluted further? We have already seen the downward revisions in business investment for Q1 GDP to 5.8% from 7.2%. With the aforementioned stimulatory effects of fiscal and monetary policies eroding, coupled with rising oil, businesses might struggle to maintain the hiring spree of the first 5 months of the year. A further retreat in business investment along with persistent increase in the trade deficit would bring about a bigger bite of Q2 GDP.

snip>

7. With next week's release of the April trade balance as the main release of the week, the dollar could sustain fresh declines ahead of an expected resurgence in the oil-driven record-breaking deficit.

more...

[chiburb]

25. Stock Market Closed Friday!!!!

Yipee! A bonus day!

No link, but the NYSE decided just now.

[54anickel]

26. New York exchange to close Friday

http://cbs.marketwatch.com/news/story.asp?guid=%7BBABBD34B-2B04-4E12-B9A3-2CD275B5646B%7D&siteid=google&dist=google

NEW YORK (CBS.MW) - The New York Stock Exchange will be closed Friday in honor of former U.S. President Ronald Reagan.

Other U.S. financial markets are also considering closing on Friday. No final decisions have yet been reached. The Securities and Exchange Commission would have to approve any closure.

The New York Stock Exchange has traditionally closed for presidential funerals. The exchange also closed for the funeral of Martin Luther King Jr. in 1968 and has always closed for the funerals of British monarchs

President Bush has declared Friday a day of national mourning.

more...

[Frodo]

30. Whoa! Has that happened before?

What's scheduled for Friday? PPI right? Hasn't that been delayed a couple times already this year?

[54anickel]

27. U.S. 10-Year Treasury Notes Drop Before Reports on Inflation

http://quote.bloomberg.com/apps/news?pid=10000103&sid=azdwuJ3UqyIE&refer=us

June 7 (Bloomberg) -- The benchmark 10-year U.S. Treasury note fell for the fourth day in five, pushing its yield to the highest in almost three weeks, before reports this week that are forecast to provide more evidence of inflation.

Investors are demanding more yield to compensate for the risk the Federal Reserve may be too slow to stem rising consumer prices. Fed Governor Donald Kohn, who votes on monetary policy, said Friday that recent price gains don't show a new wave of inflation, which erodes the value of fixed-income payments.

``Yields are going to continue to go higher,'' said Alan De Rose, a government bond trader in New York at CIBC World Market, one of 23 primary dealers of U.S. government securities that trade with the Fed's New York branch. ``I don't think we've priced it all in yet.''

snip>

The Treasury Department said today it will auction $15 billion of five-year notes Wednesday and $10 billion more of 10- year notes, which were first sold last month, on Thursday. All of the money will be new cash, meaning none of the proceeds will go toward repaying maturing debt.

More Inflation

Prices of imported goods rose 0.8 percent in May, compared with 0.2 percent in April, the Labor Department may say Thursday, according to the median of 29 forecasts in a Bloomberg poll. Producer price may rise for a six month, the department may report Friday, according to a separate survey.

``Signs of inflation are everywhere from the gasoline station to the grocery stores and this is a concern for investors as well,'' said Christopher Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. in New York. ``Until the Federal Reserve takes steps to take back its accommodative policy, bond investors are likely to be cautious.''

more...

[54anickel]

28. 12:38 numbers and Easy Street Yada!

Dow 10,330.40 +87.58 (+0.86%)
Nasdaq 2,000.29 +21.67 (+1.10%)
S&P 500 1,133.49 +10.99 (+0.98%)
10-yr Bond 4.789% +0.015
30-yr Bond 5.478% +0.014


12:00PM: The optimism exhibited on Friday on the heels of the better than expected Employment report got carried over into today's session, as the major averages have spent the bulk of the morning climbing higher... Contributing to the favorable bias has been the lower price of crude oil, which continues to decline on the heels of OPEC's production increases announced last week, as well as the market's technical favorable stance...

With respect to the latter, the Dow has traded above its 50-day simple moving average at 10,257, joining the Nasdaq and the S&P 500, which surpassed their respective 50-day simple moving averages last week... Separately, the Nasdaq has managed to pull above the psychologically significant 2000 mark... The gains are broad-based with the bulk of the sectors supporting the advance... Leaders to the upside include the hardware, networking, disk drive, semiconductor, software, telecom, oil services, gold, transportation, broker/dealer, airline, housing, materials, energy, and casino & gaming groups...

The latter is higher on the heels of MGM Mirage's (MGM 11.83 -0.03) offer to acquire Mandalay Resort Group (MBG 70.89 +10.62) for $7.65 bln, or $68/share in cash... There are no laggards of note, although the biotech group is experiencing some profit taking in the aftermath of the numerous favorable developments at the ASCO conference... Elsewhere, the bond market is showing losses across its yield curve, with the 10-year note down 6/32 at 4.80%.

11:30AM : The Nasdaq gets another go at the psychologically significant 2000 mark, as all of the major averages reach to fresh session highs... The advance continues to be supported by the bulk of the sectors, with the biotech group among the lonely exceptions... The casino & gaming sector is among today's strongest gainers on the heels of MGM Mirage's (MGM 11.85 -0.01) offer to acquire Mandalay Resort Group (MBG 70.82 +10.55) for $7.65 bln, or $68/share in cash...

According to UBS, for one, MGG could be willing to raise its bid another 5-10% to $72-$75 per share before it could be dilutive to MGG's cash flow valuation... Separately, Banc of America upgraded Caesar's Entertainment (CZR 14.88 +0.76) to Buy from Neutral saying the MGG/MBG merger news has knocked the firm off the fence and into the "buy camp" with respect to CZR...please see Briefing.com's Upgrade/Downgrade Briefing for more details...NYSE Adv/Dec 2343/696, Nasdaq Adv/Dec 1943/927

11:00AM : New session highs for the blue-chip averages over the past half an hour, while the Nasdaq is vacillating near its best levels of the morning... In its advance, the Dow has cleared its 50-day simple moving average at 10,257 - a favorable technical development... The S&P 500 and the Nasdaq are also trading above their respective 50-day simple moving averages after clearing them last week... All of the major averages are also trading above their respective 200-day simple moving averages...

Contributing to the positive technical developments is carryover from Friday's better than expected Employment report, which showed a 947K surge in payrolls over the past 3 months, which has effectively erased the jobs deficit left from the downturn since November 2001... The latter development has underscored the strong economic growth that is occurring...NYSE Adv/Dec 2270/707, Nasdaq Adv/Dec 1843/941

[54anickel]

29. Housing: Too Good to be True

http://www.mises.org/fullarticle.asp?control=1533&id=69

snip>

Once again, Fed Chairman Alan Greenspan has created a new-age economic panacea, and earlier this year he applauded his contribution to the economic recovery: "very low interest rates and reduced taxes, have permitted relatively robust advances in residential construction and household expenditures. Indeed, residential construction activity moved up steadily over the year."

The key to this panacea is the process of "equity extraction" that occurs when people refinance their homes; they take equity out and spend it to increase their standard of living. However, because variable rate mortgages are so low, their payments actually go down so they have more of their income to spend, or they can upgrade to a more expensive house. As Greenspan explained:

Other consumer outlays, financed partly by the large extraction of built-up equity in homes, have continued to trend up. Most equity extraction—reflecting the realized capital gains on home sales—usually occurs as a consequence of house turnover. But during the past year, an almost equal amount reflected the debt-financed cash-outs associated with an unprecedented surge in mortgage refinancings.

As is the norm, Greenspan hedges his statements. He also considers some of the potential drawbacks and pitfalls on the horizon for the new paradigm in housing, but in the end he concludes that we really have nothing to worry about. Low interest rates, rising home prices, and lower financing costs mean that we actually can have our cake (homes) and eat it too (equity extraction).

To be sure, the mortgage debt of homeowners relative to their income is high by historical norms. But as a consequence of low interest rates, the servicing requirement for the mortgage debt of homeowners relative to the corresponding disposable income of that group is well below the high levels of the early 1990s. Moreover, owing to continued large gains in residential real estate values, equity in homes has continued to rise despite sizable debt-financed extractions. Adding in the fixed costs associated with other financial obligations, such as rental payments of tenants, consumer installment credit, and auto leases, the total servicing costs faced by households relative to their incomes are below previous peaks and do not appear to be a significant cause for concern at this time.

The Housing Bubble

more...

[KoKo]

32. Interesting all the housing Bubble articles, today.....

Thanks "54." One thing that is missing though,seems to me, is speculation that many folks without jobs may be using their home equity to live on rather than just buying those boats,Gucci and new tv's. It's just my speculation, but since our economic recovery seems to be hyped according to some of the analyists linked here, then it would seem that it would be dire indeed if these folks who've borrowed to feed and provide other necessities to their families don't get another job after working through their equity, or they get a job that doesn't pay as well as their last one. :-(

But, I suppose statistically this doesn't really change anything, because a re-fi is a re-fi no matter where the money is ued, but it would be another avenue to explore as to how this fits in with our macro economic picture. Is the economy roaring back, or is more being hidden or glossed over by statistics which are very narrowly focused? :shrug:

[Frodo]

33. That would be tough

It's hard to GET at that home equity when you don't have a job. Not impossible, but more difficult.

I was going to say it was unwise as well, but who am I to judge? If you're out of work and there's 50-100k sitting in your house that wasn't there a few years ago - who can blame you for feeding your children?

[abelenkpe]

42. One of the

animators I work with has refinanced his house three times over the past few years. He has not been using that money to make improvements, but to pay for the basics. He used to make quite a bit as a hand drawn animator at Disney for 20 years, but now makes considerably less as a computer animator. He was laid off in May. Another former background artist for Disney and Dreamworks is now working making sandwiches at Canter's. He also makes up for the reduced salary by refinancing. So, there are families out there living off of refinancing. Not a very encouraging sign if you ask me. But, what do I know?

[54anickel]

34. 3:17 numbers and blather - Looks like some of that liquidity they've

been pumping out the past couple of months has found its way to the markets.

Dow 10,369.43 +126.61 (+1.24%)
Nasdaq 2,011.34 +32.72 (+1.65%)
S&P 500 1,137.64 +15.14 (+1.35%)
10-yr Bond 4.764% -0.010
30-yr Bond 5.457% -0.007

NYSE Volume 921,512,000
Nasdaq Volume 1,157,271,000

3:00PM: The market continues to advance, with the major averages now higher by 1.1-1.5%... The advance is broad-based, with the overwhelming majority of the sectors participating and showing sizeable gains... Among the biggest winners in today's session is the homebuilding group, which is up 3.0%, as indicated by the HGX index... The advance comes in conjunction with a slight advance in the bond market, where the 10-year note is up 3/32, bringing its yield down to 4.76%... Separately, the Consumer Credit report checked in at 3.9 bln versus the consensus of 5.5 bln...NYSE Adv/Dec 2501/779, Nasdaq Adv/Dec 2042/1050
2:30PM: Buyers remain at the helm, as the major averages continue to trade along their best levels of the session, with the Nasdaq and S&P 500 having set fresh session highs since the last update... The price of crude oil, which has been in the spotlight of late, has been moved to the back-burner in today's session... Currently up $0.15 at $38.64/bbl, the price of the commodity has been vacillating around the unchanged mark for most of today's session... Last week, OPEC announced that it would increase production by 2 mln barrels a day, with another 0.5 mln barrels a day in August...

Below $40/bbl, the price of crude oil is trading near a five-week low... For more thoughts on the implications of elevated crude oil prices, please read Briefing.com's Tying It Together column...NYSE Adv/Dec 2512/749, Nasdaq Adv/Dec 2023/1043

Advances & Declines
NYSE Nasdaq
Advances 2539 (74%) 2092 (64%)
Declines 759 (22%) 1019 (31%)
Unchanged 127 (3%) 116 (3%)

---------------------------------------------------------------------

Up Vol* 761 (88%) 903 (81%)
Down Vol* 94 (10%) 192 (17%)
Unch. Vol* 4 (0%) 7 (0%)

----------------------------------------------------------------------

New Hi's 116 87
New Lo's 16 23


http://www.publicdebt.treas.gov/opd/opdpenny.htm

Debt to the penny

06/04/2004 $7,211,664,978,671.13

[54anickel]

35. Between a Rock and a Hard Place

http://www.321gold.com/editorials/taylor/taylor060704.html

Debt in the aggregate, is rising exponentially. Income is rising in a linear fashion at best. There has been a growing inability of consumers to meet their debt obligations, even during the period when interest rates were falling. Such difficulty is seen from a dramatic rise in consumer bankruptcies from a little over 300,000 per year in 1980 to 1.7 million now. Any dramatic rise in interest rates is likely to trigger the cascading deflationary spiral envisioned in Ian Gordon's Kondratieff winter.

So, what the ruling elite have to do is hold down real rates of interest (interest rates less the rate of inflation). But they have some real problems doing that now because the bond vigilantes are coming back. Why are they back? Check the gold price. It is rising. As Lawrence Summers knew, the gold price had to be capped if real interest rates declined. Otherwise, the dollar would decline in value and the reality of America's depraved economic policy would be exposed as foreign creditors would be expected to begin reducing their holdings of dollars. And without the benefit of foreign savings, U.S. interest rates will likely begin to rise dramatically. So why don't the gold manipulators continue to cap the gold price? There are at least two reasons I can think of. First of all, if they could cap the gold price, thereby causing the dollar to remain stronger than its fundamentals warrant, that would lead the U.S. and then the global economy into a deflationary collapse. Secondly, I don't believe the manipulators can cap the gold price any longer. I say that on the basis of the extensive evidence from www.gata.org that the central banks, which according to Alan Greenspan, "stand ready to lease gold in increasing quantities, should the price begin to rise," are running out of gold.

Okay, central banks may not be running out of gold...

snip>

"A Fan & Fred Spectacular"

John Whitney brought this Wall Street Journal editorial to my attention. The article by Susan Lee suggested that two of the most likely catalysts to topple the U.S. financial system into the Kondratieff winter are Fannie Mae and Freddie Mac, the two extremely leveraged funds that "pretend to be housing-finance companies." Ms. Lee pointed out that 34% of these institutions have funded their long-term book with short-term (1 year) money. As interest rates rise, clearly the cost of funding rises faster than income is coming in.

One of the reasons these highly leveraged institutions have been able to take on so much debt, including short-term debt, is because investors have seen these institutions as quasi-government and thus would always be bailed out via the printing presses. The official position of the government, which has been fostered by the Bush Administration, is that the U.S. would not bail out Fannie Mae and Freddie Mac, and Standard & Poor's has begun rating its debt accordingly. This could start the markets to face the reality of the awful financial condition these two giants are in, which in turn may well start to cause creditors to begin liquidating their holdings in these two organizations.

How big might a defaulting Freddie Mac or Fannie Mae be? The author finished her editorial with the following. "Their combined securities-direct and guaranteed debt-are larger than the Federal government debt, and widely held. Simply put, they have just the right mix of the big and dangerous to generate one spectacular financial crisis."

Indeed, John Exter noted this very problem. Banks tend to borrow short term and lend long term because of the profit from the spread between long-term and short-term rates. Then when short-term rates begin to rise (which they tend to do more quickly than long-term rates), the liquidation process and the downward move from the least liquid assets (like small business and real estate) toward T-Bills, cash, and gold gets underway.

With money and debt growing at a rate in excess of 20%, it looks to me like the Fed is in a panic mode. Something big may be about to happen, which leads me to think it may very well be a Freddie Mac and/or Fannie Mae implosion. And with this debt spread out to such a huge number of Americans who have their money market fund or other holdings invested in these twin killers, we can only hope Susan Lee's fears, as expressed in this article, and the concerns of Federal Reserve St. Louis head, William Poole, are off base.

more...

[54anickel]

36. The calm before the market storm

http://moneycentral.msn.com/content/P85415.asp

snip>
The laser-jet-setting Fed

Another problem that folks seem completely oblivious to: The Fed continues to print money furiously, generating an inflationary problem. For the time being, they appear much more focused on deflation. (I would just note that it's only in the absence of inflation fears that inflation really gets stoked.)

The money-supply numbers are so large as to be incomprehensible, but I'll try to put them into perspective: Two weeks ago, M3, the broadest measure of money supply, rose by $46 billion. (This particular surge has been more a result of assets shifting into institutional money funds than any overt action by the Fed. So for once, this isn't an example of pure Fed pumping.) At that rate, we'll have created about $1.5 trillion from thin air -- in about seven months' time.

I pick $1.5 trillion because it's the approximate value of all the gold that's been found since the beginning of time. Though obviously an estimate, as no one knows for sure, I think the point survives. I thank Richard Russell for sparking this thought. I also note his observation that about two weeks' worth of M3 creation would buy all the gold equities in existence. That should give you some idea why folks like myself, who think the Fed is totally out of control, want to own gold, silver and foreign currencies.

Which brings me to another point: That "money" creation I just described is only the amount created here at home. Obviously, the Japanese have created liquidity by sopping up dollars, as have the Chinese, as have the Europeans. When the light bulb finally goes off on how irresponsible the Fed has been and we get to the juncture where all that irresponsibility still hasn't saved the day, you can be your own judge as to how high the price of metals may go or how low the dollar may go.

snip>

The moral (hazard) of the story

This, of course, means that the Fed is trapped, as it has shown no willingness to do anything except print money. Even if we are headed to deflation somewhere down the road, as many people think, for the moment we have an inflation problem. The Fed needs to tighten (and not just raise the price of money by a freckle), but it is obviously reluctant to do so, despite its chirping about all the great economic data. Bulls should ask themselves, if the data are so great, how come the Fed still feels like it must print money hand over fist?

If things start to get nasty, the Fed can't ease, because of the pressures that are already building. The Fed has finally engineered itself to the point where it's between a rock and a hard place -- and will be unable to respond to the next catastrophe. We will have one, unfortunately, thanks to the policies pursued by the Fed and the response to those policies by the public and the world at large.

more...

[jeffrey_X]

38. Any idea where mortgage rates are headed in the next 14 days?

I'm closing on our new condo in the next 60 days and am trying to lock in. Todday I can get a 6.375 on a 30-year fixed. Any chance this will creep down a bit or is going to keep rising?

Any input/insight would be greatly appreciated.

thx

[54anickel]

39. Rates rise in Treasury bill auction

http://www.mlive.com/newsflash/business/index.ssf?/newsflash/get_story.ssf?/cgi-free/getstory_ssf.cgi?f0121_BC_TreasuryBills&&news&newsflash-financial


WASHINGTON (AP) -- Interest rates on short-term Treasury securities rose in Monday's auction.

The Treasury Department sold $18 billion in three-month bills at a discount rate of 1.230 percent, up from 1.130 percent last week. An additional $15 billion was sold in six-month bills at a rate of 1.505 percent, up from 1.400 percent.

The three-month rate was the highest since Nov. 4, 2002, when the bills sold for 1.410 percent. The six-month rate was the highest since Oct. 28, 2002, when the rate was 1.515 percent.

[54anickel]

40. US Treasury to sell $24 bln 4-week bills Tuesday

http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=5362319

WASHINGTON, June 7 (Reuters) - The U.S. Treasury Department said on Monday it will sell $24.00 billion of four-week bills on Tuesday, June 8.
The bills will be issued on June 10.

Proceeds from the sale will be used to refund $19.00 billion of publicly held four-week securities maturing on June 10 and to raise about about $5.00 billion in new cash.

The four-week bills announced on Tuesday mature on July 8.

Treasury said $11.30 billion of bills can be excluded when bidders calculate their net long positions. The net long position reporting threshold is $8.40 billion.


http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=5362427

U.S. to sell $15 bln in 5-year notes Wednesday

WASHINGTON, June 7 (Reuters) - The U.S. Treasury Department said on Monday it will sell $15.00 billion of five-year notes on Wednesday, and $10.00 billion of reopened 10-year notes on Thursday.
The sales will raise new cash, Treasury said.

more...

[54anickel]

41. Where are we along the inflation/deflation curve?

http://www.gold-eagle.com/gold_digest_04/droke060304.html

Where are we now along the long-term inflation/deflation curve? Are we heading, as many commentators now assert, into a period of hyper-inflation similar to that of the 1970s? Or is the country moving the opposite direction into spiraling deflation (as Bob Prechter, et al, contend)? Is it possible that both sides in the debate are wrong and that the answer lies somewhere in the middle? I believe this is a distinct possibility (nay, a probability) and I'll outline my position in the paragraphs that follow.

I first brought up the possibility of the coming years being marked by deflation mixed with inflation in an article about three years ago and dubbed it (with special thanks to one of my readers) "retroflation." This term was coined to describe the aspects of living in K-wave deflation while the Fed attempts to keep the economy liquid by priming the liquidity pump. Have we not seen the realities of retroflation in the past two years as certain retail segments of the economy remain low, while other areas have inflated (most notably oil and gasoline)? This amply demonstrates the dual forces of inflation and deflation at work.

I would like to suggest that, for the next few years at least, this mixture of inflation and deflation will present the best of all possible worlds, economically speaking. K-wave deflation will keep the overall consumer price level at relatively low levels while financial asset values and select commodities will continue to rise. We've looked previously at the conditions that are now in place to bring this scenario about, namely, massive levels of debt on the personal, corporate, and federal levels that allow the Fed to pump money with reckless abandon...and get away with it! This is what I mean by "the best of all possible worlds" from a Keynesian's point of view.

Another thing the money masters of the U.S. economy have going for them is that we're about to enter the historically buoyant 05-09 portion of the decade (i.e., 2005-2009) which is historically bullish. In fact, there has never been an exception to this bullish pattern in the last 100 years of U.S. history. The 10-year cycle bottoms at the end of every fourth year (2004) and the subsequent lifting effect spills over into the fifth year of the decade, with intermittent pullbacks in even numbered years (e.g., 06, 08) and typically "up" years in the 07 and 09 years. Thus, 2005-2009 should be overall positive from an economic standpoint.

snip>

This is where the engineered, M3-driven bull market will come greatly into play. It is absolutely indispensable for the ruling class that the Fed continues to liquify the economy at a breakneck rate in the next few years. For this is the critical time frame they have been waiting for. We have reached the final step in the age-old dream of a global economy and it's nearing completion. The powers-that-be cannot afford a step backward at this point, hence they've no desire to awake the sleeping giant of the U.S. public. That's why I believe an all-out, two-fisted assault will be waged to keep Americans entranced with money, money, and more money in the remaining years of this decade as the globalist dream is realized by the Elites.

By keeping the average American preoccupied with SUVs, DVDs, second homes, and rising stock portfolios, there almost assuredly will be no protest from Americans when they gradually discover that the "old world economy" is giving way to a global economy with a new set of rules. This, I believe, accounts for the Fed's incessant efforts at keeping the U.S. economy afloat for as long as possible. And so for now, the party continues.

more...

[54anickel]

43. Closing numbers and bull's bull

Dow 10,391.08 +148.26 (+1.45%)
Nasdaq 2,020.62 +42.00 (+2.12%)
S&P 500 1,140.42 +17.92 (+1.60%)
10-yr Bond 4.765% -0.009
30-yr Bond 5.459% -0.005

NYSE Volume 1,211,666,000
Nasdaq Volume 1,484,523,000

Close: Probably the only thing that the bulls could complain about in today's session was the light volume... Otherwise, the cards were clearly stacked in favor of the Wall Street's enthusiasts as the major averages spent the entirety of the session climbing higher, closing with gains of 1.5-2.1%... The gains were fueled by positive carryover from Friday's better than expected Employment report, which showed a 947K surge in payrolls over the past 3 months, effectively erasing the jobs deficit left from the downturn since November 2001...
Contributing to the favorable sentiment was the market's improved technical stance... Specifically, the S&P 500 and the Nasdaq were able to hold above their respective 50-day simple moving averages, which they had cleared last week, while the Dow pulled and closed above its 50-day simple moving average at 10,257 in today's session... Additionally, the Nasdaq was able to lift above the psychologically significant 2000 mark, inciting additional buying interest... The gains were broad-based, with the majority of the sectors posting gains of over 1%...

The casino & gaming group was among the biggest gainers on the heels of MGM Mirage's (MGM 11.82 -0.04) offer to acquire Mandalay Resort Group (MBG 70.26 +9.99) for $7.65 bln, or $68/share in cash... Among the few groups in the red was the biotech sector, which experienced a sell-the-news reaction on the heels of the ASCO conference - please see the Story Stocks column for more details... This morning's sole economic report included the Consumer Credit report at $3.9 bln versus the consensus of 5.5 bln... Elsewhere, the bond market posted mild gains, with the 10-year note closing up 3/32, bringing its yield down to 4.76%...

[54anickel]

44. Couldn't pass this up - Market up on fond memories of Ronnie

http://biz.yahoo.com/rb/040607/markets_stocks_12.html

Stocks End at Month Highs

NEW YORK (Reuters) - U.S. stocks rallied to their highest level in a month on Monday as investors fed off Friday's strong job numbers and stabilizing oil prices.

Boeing Co. (NYSE:BA - News) helped drive the blue-chip Dow after positive comments from a company executive on future orders for the company's new 7E7 passenger jet. Cisco Systems Inc.(NasdaqNM:CSCO - News) led the Nasdaq higher.

A feel-good factor spread across the market, traders said, as Wall Street recalled the economic growth it saw under former president Ronald Reagan.

snip>

But widespread media coverage of Reagan's time as president -- marked by explosive growth in the economy and the stock market -- rekindled a sense of optimism among investors.

"There could be a nostalgia rally, a bit of a Reagan bounce," said John Davidson, president of Partner Re Asset Management Corp. "There may be an element of looking back on the Reagan years that is giving people once again a sense of well-being."

[Cocoa]

45. he got a bigger bounce than Uday and Qusay!

[54anickel]

46. HA! You're right! I hadn't even thought about that. Thanks!