Investment

» ECRI - Out of office reply...

Hi All, Just a quick note to say that I'll be out of the office until July 10th. I didn't want anyone to think silence on our part meant anything else! Jas, I'll take a look at your report in the meantime. All the best, Lakshman

-- posted by ECRI

» Normxxx - LEI falls (as expected)

Leading indicators fall 0.6 pct in May

By Yahoo! News | 22 June 2006

NEW YORK— A widely watched gauge of economic activity slipped by 0.6 percent in May, the Conference Board said Thursday, suggesting that the nation's economy could weaken in coming months.

The Conference Board, an industry-backed research group, said its Index of Leading Economic Indicators fell to 137.9 in May after it declined 0.1 percent to 138.7 in April.

The May figure was in line with what analysts had expected.

The index is watched closely because it's designed to predict economic activity three to six months in the future.

It was index's third decline in six months, and the lowest since a reading of 136.9 in October.

Seven out of the ten indicators that comprise the leading index decreased in May— the biggest negative contributor was average weekly initial claims for unemployment insurance, followed by consumer expectations, real money supply, average weekly manufacturing hours, building permits, stock prices and vendor performance.

Three indicators improved in May— manufacturers' new orders for nondefense capital goods, manufacturers' new orders for consumer goods and materials, and interest rate spread.

Over the last six months, the biggest negative contributor to the leading index's drop has been declining housing permits.

______________


The contents of any third-party letters/reports above do not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.

-- posted by Normxxx

» ECRI - LEI falls (as expected)

In response to LEI falls (as expected) posted by Normxxx:

Note: The LEI data (6/22) today refers to the month of May, while the WLI out tomorrow goes through 6/16.

-- posted by ECRI

» SteveT - Bernanke's risky business

Are the Fed's hawks going overboard in their zeal to slay inflation?

By Rex Nutting, MarketWatch
Last Update: 5:35 PM ET Jun 23, 2006

WASHINGTON (MarketWatch) -- While Federal Reserve officials burnish their inflation-fighting credentials with blunt talk, there's growing concern that policy-makers might push the U.S. economy off the cliff by lifting interest rates too high.

In their quixotic battle to slay inflation and keep prices stable, Fed officials may have forgotten the other half of their mission: To keep the economy growing with maximum employment.

The central bank's key Federal Open Market Committee will meet on Wednesday and Thursday to prepare its semiannual economic forecast. In the run-up to their meetings, Fed officials clearly signaled their intentions to raise rates. They said inflation trends were "unwelcome" and "unacceptable." They added that inflation expectations had become "unhinged." They promised not to be "complacent."

The FOMC will almost certainly vote to raise overnight interest rates for an unprecedented 17th consecutive meeting on Thursday, bumping the federal funds rate by a quarter percentage point to 5.25%.

Economists and financial markets expect at least one more rate hike after that, likely in early August.

A lot of people think that would be a big mistake, the kind of mistake caused by a rookie driver looking in the rearview mirror when he should be focused on the hairpin turn that looms straight ahead.

"If the FOMC persists in raising the fed funds rate under current circumstances, it runs the serious risk of precipitating a U.S. economic recession either late in 2006 or early in 2007," said Paul Kasriel, head economist for Northern Trust.

The arguments against further Fed rate increases boil down to two separate but related points: 1) The economy is weakening, and 2) Inflation is not in the danger zone.

The economy is slowing
The economy is slowing from a breakneck pace in the first quarter, when gross domestic product increased at a 5.3% pace (an upward revision to 5.5% is likely).

GDP has averaged 4% over the past four years, a rapid pace that's absorbed most of the economy's slack resources. But now most economists think growth will slow to about 3% or so in the second quarter and on through the end of 2007.
For the first time in three years, the U.S. economy is projected to slow to its long-term potential of about 3% and stay there. With growth at or below potential, inflationary pressures should subside.

A similar slowdown is seen around the world. Nearly 20 central banks have acted to raise interest rates, or signaled they're about to do so, in the past few months.

"We expect that a relatively modest slowdown in global growth, driven in part by more restrictive monetary policy, should be sufficient to contain nascent inflationary pressures," said Lewis Alexander, chief economist of Citigroup Global Markets.

It's not just a fringe group of economists who believe U.S. growth is slowing. The Blue Chip Economic Forecast survey of 53 economists sees growth at slightly less than 3% for the next five quarters. In February, the Fed itself projected 3% to 3.5% growth in 2007.

Nariman Behravesh, chief economist for Global Insight, points out that high gasoline prices have forced consumers to spend less. Behravesh sees GDP slowing to 2.7% in the second quarter, "with no improvement expected in the second half."
Indeed, Ben Bernanke himself said in early June, "The anticipated moderation of economic growth seems now to be under way."

Housing is the key
The rosy 3% scenario is based on economists' best guesses that housing will slow, but not collapse, and that consumers will be able to keep spending at a healthy rate, bolstered by decent wage gains. Capital spending by businesses is expected to fill some of the gap left by housing.

The danger, of course, is that growth might be much weaker than 3% if housing prices fall rather than just level off, or if energy prices go higher, or if wages continue to stagnate, or if the dollar collapses. Or if the Fed overtightens.
"The risks are on the downside," said Robert McGee, chief economist for U.S. Trust, who says the dangers of a housing collapse are underappreciated.

Housing was the pillar of strength in the economy for the past four years, contributing not only to investment but also to employment and to consumer spending. Deutsche Bank figures about 2 million of the 5 million jobs created since 2002 were related to the housing boom. The Fed figures that income from mortgage equity extraction increased from about 3% of personal incomes to about 7%, adding trillions of dollars to consumers' spending and allowing the personal savings rate to fall into negative territory.

All that growth was based on ever-higher home prices. But now home prices are leveling off. Even assuming a gentle slowdown, the housing sector will be a significant drag on growth, employment and spending.

A few people think home prices could actually fall nationwide.

"The outlook for home prices is much worse than the consensus thinks," said Anirvan Banerji, director of research at the Economic Cycle Research Institute. Banerji said the ECRI's leading index of home prices is flashing warnings that real home prices (adjusted for the rise in consumer prices) could fall.
"We'll have a harder landing than people expect," Banerji said.

Factories slowing too
Banerji also rejected the idea that capital spending or exports will save the day. The ECRI's long leading index of global industrial production is falling, signaling a global industrial slowdown in the next year. ECRI's forecast is being confirmed by recent softness in new orders in the Institute for Supply Management index.

Other economists expect capital spending to slow, following the weakness in consumer spending. "Turning points in the growth rates of retail sales typically lead turning points in the rate of growth of manufacturing output by a quarter or two," said Ian Shepherdson, chief U.S. economist for High Frequency Economics.

The slump could be serious, Shepherdson said.
The recent rise in corporate bond yields suggests that the Institute for Supply Management Index could plunge into the mid-40s by the spring, "very close to recession territory," Shepherdson said.
It was a similar drop in the ISM in late 2000 that led the FOMC to start its historic interest rate cuts in early 2001, even as core inflation rates were still rising.

Very few economists are talking about a recession at this point, but the risk of recession rises with each Fed rate hike. "If the Fed follows inflation up, it runs the danger of overreacting and pushing the economy into or near recession," said David Wyss, chief economist for Standard & Poor's. "Usually, that is what the Fed has done at these inflection points."

Bernanke and a slew of other Fed officials have emphasized that the Fed's major goal right now is to keep inflation within the Fed's implicit comfort zone of 1% to 2%, as measured by the core personal consumption expenditure price index.
Core inflation now crept up to 2.4% in the past 12 months. That acceleration is "unwelcome," Bernanke said, in remarks that forced the financial markets to price in a June rate hike and perhaps an August one as well.

Resting point
The increase in inflation may be unwelcome, but it's not unexpected. In February, the FOMC predicted that core inflation would average between 1.7% and 2.5% in 2006 before falling back to about 1.75% to 2% next year.
So far, the Fed's forecast is looking pretty accurate.

At the same time, its policy-makers may be setting an unrealistic goal by trying to keep inflation below 2%, said Cary Leahey, an economist for Decision Economics. "What if the natural resting point for inflation was 2.2% or 2.3%?" Leahey said.

Since 1996, when the Fed seemed to achieve its goal of price stability, core inflation has averaged 1.7%, at the high end of the comfort zone. If the Fed's target is 1% to 2%, inflation ought to be below 1.5% about half the time. But since 1996, core inflation has been below 1.5% for an extended period on only two occasions, and in both cases, the Fed was in full crisis mode, was slashing interest rates rapidly.

In 1997 and 1998, the Asia financial crisis helped lower U.S. inflation rates, but also led to a global crisis that had the Fed cutting rates in emergency sessions.

In 2003, with the core rate at 1.3%, the Fed drove the overnight rate to 1% and was publicly worrying about deflation. Some were even talking about throwing money out of helicopters to deal with the problem.

The Fed ought to move its comfort zone a little higher "to get a bigger safety cushion," said Alan Blinder, an economist at Princeton University and a former No. 2 official at the Fed. He thinks the 1%-2% zone is too low by about a quarter or half percentage point.

"If we go into a recession with 1% inflation, we'll probably go negative," Blinder said. "We are one recession away from deflation."

Backward-looking Ben?
Given Bernanke's history as an advocate for more forward-looking policy, his rhetoric of the past month is a surprise, because he's talked very little about the Fed's forecast that inflation would head higher this year before falling back next year.

"Inflation is a lagging indicator of the forces that drive it ... so targeting the current inflation rate would be akin to driving a car by looking through the rearview mirror," said David Berson, chief economist for Fannie Mae.
Fed research shows that the full impact of monetary policy on inflation can be as much as two or three years. If that's true, then the 2.4% increase in core inflation in the past year reflects the 2004 fed funds rate of 1%, not the current 5% rate. Even if the Fed were to raise rates again and again, it would have little impact on inflation in the next few months.

"The lags are crucial," Blinder said. Blinder said that when Bernanke has written about inflation targeting, he has always emphasized the forecast for inflation in the medium-term, not the past performance.

In his early June speech, Bernanke took pains to say that "the medium-term outlook for inflation will receive particular scrutiny," but that part of his message was drowned out by the markets' attention to his more hawkish comments.

Inflation not sustainable
While the inflation figures have been frightening, some economists say they aren't as troublesome as they appear because they've been driven by temporary factors (like oil and housing) that are not likely to lead to a sustained burst in inflation like that seen in the late 1960s or 1970s.

It's almost impossible to get a sustained rise in inflation without a rise in labor costs, said Jan Hatzius, chief economist for Goldman Sachs. A vicious inflationary cycle can take hold if workers demand and get higher wages to pay for the higher costs of goods and services. But unit labor costs have been "benign," Hatzius said.

With profits still very high and wages low, "companies have ample room to absorb increases in costs of energy and other raw materials," Hatzius said.

In particular, Hatzius warns against raising interest rates to fight inflation caused by higher rents, which have been responsible for about 60% of the acceleration in the core consumer price index so far this year.

"It seems inappropriate to base further tightening in monetary policy on a housing-driven pick-up in inflation, especially if it reflects an evolving weakness in home prices and housing activity," Hatzius said. Higher interest rates can't stop inflation induced by higher rents, because higher interest rates lead to even higher rents. As mortgage rates rise, home ownership becomes less affordable, leading more people to rent, and higher demand for rental units raises rents.
Bernanke, who is still fresh on the scene running the Fed, may be put to a severe test even as he's still settling into the job vacated by the legendary Alan Greenspan.
"It takes nerves of steel to stop hiking rates in the face of accelerating inflation," said Benjamin Tal, an economist for CIBC World Markets. "The new Fed chief will soon shift his attention to other, more forward-looking indicators -- even in the face of rising inflation."

If he doesn't, said Tal, it "could very well make Ben Bernanke the first Fed chairman to trigger a recession only six months into the job."

Rex Nutting is Washington bureau chief of MarketWatch.

-- posted by SteveT

» Jas_Jain - Bernanke's risky business

In response to Bernanke's risky business posted by SteveT:

--

“Are the Fed's hawks going overboard in their zeal to slay inflation?”

For those to whom history matters, the answer can be found in:

YIELD-CURVE, INFLATION, AND RECESSIONS: Are Recessions Necessary to Control Inflation in the US?

http://www.financialsense.com/fsu/editor...

It Is Different This Time crowd has no need to waste time. Just hope and wish.

Jas

-- posted by Jas_Jain

» Jas_Jain - RE: Weekly Leading Index Rises + U.S. Inflation Pressures Ease

In response to U.S. Inflation Pressures Ease posted by Kirk:

--

Thanks, Kirk.

On the surface, two pieces of good news for the Scam Market bulls.

The good news for us bears is that the Fed is backwards looking on inflation. It will do what is necessary to induce a recession to really kill inflation. How does Nevember 2006 sound as the target for the next recession?

The coming earnings season might be bad for bulls, especially, the tech bulls.

Jas

-- posted by Jas_Jain

» SteveT - Gold Soars as Conflict Rages

By Simon Constable
TheStreet.com Staff Reporter
7/14/2006 3:23 PM EDT

Precious metals prices soared Friday as the conflict between Israel and Lebanon heightened and investors sought sanctuary in safe-haven investments such as gold and silver. Contracts for August delivery of gold closed up $13.6 to $668 per ounce on the Comex division of the New York Mercantile Exchange (Nymex). Silver followed suit, with September contracts up 4.5 cents to $11.55 an ounce by the end of trading.

Shares of the bullion-exchange-traded funds iShares Comex Gold Trust (IAU - commentary - Cramer's Take), streetTRACKS Gold Shares (GLD - commentary - Cramer's Take) followed futures prices higher, although the iShares Silver Trust (SLV - commentary - Cramer's Take) was recently down 1.3%.

Gold miners such as Barrick Gold (ABX - commentary - Cramer's Take), Newmont Mining (NEM - commentary - Cramer's Take) and Freeport-McMoRan Copper and Gold (FCX - commentary - Cramer's Take) were rallying. The AMEX Gold Bugs Index was up 1.1%.

As the Mideast tension has prompted a rush into so-called safe-haven investments such as gold, the accompanying surge in oil prices has some observers concerned that the uncertainty caused by the conflict may translate into slower economic growth. (Crude hit another record Friday, trading as high as $78.40 a barrel in electronic Nymex trading; recently, crude was up 75 cents to $77.45.)

"The shocks from the Middle East now have the potential to be more negative than the shocks we had last year, such as Katrina and the runup in oil prices," says Lakshman Achuthan, managing director of the Economic Cycle Research Institute, or ECRI. He notes that the economy is in a much more fragile state than it was a year ago.

Newly released ECRI data show evidence that economic growth is already slowing. The firm's Weekly Leading Index of Growth was up only 0.2% vs. 0.4% the previous week. The firm's Monthly Index shows a decline in growth to 0.9% from 2.1% in June. Although Achuthan says a recession is not a certainty yet, he notes that the cyclical effect of a slowdown would likely mean softer metals prices as industrial demand retreats.

Shares of diversified miners BHP (BHP - commentary - Cramer's Take) and Rio Tinto (RTP - commentary - Cramer's Take) were trading down at midmorning. Shares of U.S. copper producer Phelps Dodge (PD - commentary - Cramer's Take) were barely changed as copper prices remained firm on supply worries.

Comex copper contracts closed up 3.6 cents to $3.713 a pound as traders kept a watchful eye on labor negotiations at Chile's massive Escondida copper mine due to concerns that supplies of the red metal may be disrupted.

In the other precious metals, Nymex October platinum ended the session up $3.5 at $1,267.5 an ounce, while palladium traded up 95 cents to $335 an ounce by the close.

Shares of palladium miner Stillwater Mining (SWC - commentary - Cramer's Take) were trading up almost 1% at $11.39. Meanwhile, stock of North American Palladium (PAL - commentary - Cramer's Take) sank slightly despite the strong metal price and improved operating performance by the company. The firm saw a 20% increase in second-quarter palladium output, according to a company release made slightly before the opening bell.

"They are coming from a poor base," says Kevin Walkush, equity analyst with Morningstar. "They had nowhere to go but up," and also notes that NAP's management needs to deliver high-quality earnings on a consistent basis before he'd recommend the stock over Stillwater, his preferred pick of the two. Until then he remains in a wait and see mode.

Steve Thompson

-- posted by SteveT

» Normxxx - The Week Ahead

The Fool Looks Ahead

By Rick Aristotle Munarriz (TMFBreakerRick) | 16 July 2006

Hocks, Harleys, and a whole lot of hope will color in the week that lies ahead.

Monday
With Pittsburgh Steelers quarterback Ben Roethlisberger admitting this week that he was seconds away from dying after a springtime motorcycle accident, let's hope he learns his lesson and wears a helmet the next time he decides to go for a ride. If not, my more market-friendly advice would be that it would be safer for Ben to own shares in Harley-Davidson (NYSE: HDI) than to ride a Harley without protective headwear.

Want proof? Check in on Monday, when the company is expected to post earnings of $0.91 per share after a showing of $0.84 a year earlier. The shares have been nearly a 50-bagger since 1990.

Tuesday
It's true that washing down Pop Rocks with Coke won't explode in your innards. What about washing down Yahoo! (Nasdaq: YHOO) with Coca-Cola (NYSE: KO)? You'll get that chance on Tuesday, as the two giants step up for their quarterly updates.

Naturally, the market will turn to Yahoo! for insight on the state of online advertising. Coke, a recommended stock for Motley Fool Inside Value newsletter subscribers, is likely to provide more predictable results but will still give us a provocative glimpse into soda-consumption habits.

Wednesday
The first really big day for tech company earnings reports. We'll get Q2 details from Intel, Apple, CDW Corp, Motoraola, Juniper Networks, eBay, Qualcomm, and Lam Research (among others). (The popular Motley Fool Stock Advisor's eBay selection is trading at a three-year low at the moment, so disappointed investors in the leading online auctioneer would sorely welcome any kind of good news from that direction.)

[ Normxxx Here:   In a matter of hours, we'll get insight from the major players in the PC, cellphone, networking, internet, semiconductor, and SC equipment industries. Based on all of the information I've been able to glean over the last few weeks, the tech bulls are most unlikely to enjoy what these companies have to say, especially regarding their outlooks for the third quarter and second half of this year. That disconnect between what the bulls are hoping to hear and what they will hear could lead to further spectacular fireworks (at least in the tech sctor) this coming week. But, it looks like the mid-July "ambush" was triggered prematurely by events in the ME, so it is difficult to foresee exactly how things will play out next week. ]

Thursday
Maybe part of eBay's malaise can be tied to Thursday's reporting star, Google (Nasdaq: GOOG). Its Google Checkout may be a threat to eBay's PayPal. Google Base has the potential to disrupt eBay's namesake marketplace business.

Beyond that, Google has every right to stand on its own. It has completely trounced analyst estimates in six of its first seven quarters as a public company. Just when you think the shares are pricey— and a lot of you out there certainly believe that to always be the case— the company comes through with a stellar quarterly snapshot to prop the shares higher. Will the good times end on Thursday? Stick around to find out.

[ Normxxx Here:   I'm going to bet Goog disappoints this time; the Q2 slowdown is no aberration, the US consumer is finally tapped out and in trouble. According to the American bankers Association, the percentage of bank credit cards 30 or more days past due is climbing rapidly (4.4% in Q1). (And that does not include all of those sub-prime cards from non-bank sources.) Wal-mart's estimate of 1.2% same store sales in June is down sharply from last years's 4.5%. According to BB, the 30% rise in energy prices is the equivalent of a $185 billion tax increase! Nor are there any savings left; the personal savings rate has been negative for 12 straight months (-1.7% in May). There has been no consumer recession for 15 years (a record). The last dip in consumer spending was in the 1990 - 1991 recession. Housing is also tapped out. The mortgage borrowings have gone from $2.5 trillion in 1990 to $9.0 trillion today— an average increase of 13% per year compounded over the last 5 years alone, during which wages hardly budged. One-year ARMs are at 5.75%— That's the highest since August, 2001. And an estimated $2 trillion dollars worth are set to reset to these sharply higher rates over the next two years.  ]

Friday
Remember when the major pharmaceuticals were easy money? Through most of the 1990s, it seemed as though you couldn't go wrong snapping up shares of the big drug manufacturers. It was a defensive play with a growth kick to boot. The climate hasn't been as kind in recent years, and that brings us to Eli Lilly (NYSE: LLY) closing out the trading week with its second-quarter report. The company behind the Prozac antidepressant and Cialis erectile-dysfunction treatment is looking to earn $0.75 a share for the period. That would be an improvement over the $0.67 per share it earned a year ago.

Until next week, I remain,

Rick Munarriz

Eli Lilly is a Motley Fool Income Investor recommendation. Coca-Cola is a Motley Fool Inside Value pick, and eBay is a Motley Fool Stock Advisor selection. Try out any of our investing newsletters free for 30 days.

______________


The contents of any third-party letters/reports above do not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.

-- posted by Normxxx

» ECRI - NBR Interview on Fed, Oil, eco outlook

I spoke with the Nightly Business Report's Susie Gharib about the impact from oil price spikes and other shocks on the economy, and monetary policy going forward.

You can view the video online http://www.pbs.org/nbr/info/video.html

It begins about five minutes into the Top Stories. Not sure how long they'll keep it on the site...

-- posted by ECRI

» ECRI - Bloomberg Interview

Aug. 4 (Bloomberg) -- Lakshman Achuthan, managing director at Economic Cycle Research Institute, comments on the U.S. job market trend, inflationary pressures, and the Federal Reserve policy on interest rates. He spoke from New York in an interview before the Labor Department released its July employment data today.

On job market trend: "It seems as though the trend has been shifting to the downside. Certainly the goal posts have been moved" as economists are forecasting fewer job creations. "Looking at the leading indicators of employment, there's a cycle there. It certainly looks like the best news on jobs growth is behind us at this point."

"It's not that we're not creating jobs, it's not that the sky is falling or that the economy is stalled out here. But some of the stronger part of the cycle is behind us. We're in a bit of an easing pattern here in terms of overall growth, and jobs are going to be affected."

On his analysis of the future inflation gauge: "We see that it peaked out back in October. It's still elevated, which is notable. But it had a little bit of a drift downward. And then in the last few months, we saw that it may be popping to an upside."

"If it continues easing downwards, it's very good news for the Fed. Basically that would mean that underlying inflationary pressures are easing. And the Fed has been talking about how you have to look at forward-looking inflation measures as opposed to coincident measures such as the jobs report. But if it pops up to the upside, the forward-looking numbers would be a little tougher to digest."

-- posted by ECRI