HOUSING RICING OUT BUYERS? Say it ain't so!
And it IS the ENGINE of the economy. Home buying begets financial lenders profits, trips to Home Depot, use of raw materials, buying of furniture, dishes , plastic bags, lawn mowers, home improvement, yada yada.....
D
Monday, July 11, 2005
Saturday, July 09, 2005
WEEKEND COMMENTS "everyone out of the pool"
I once held a stock out of "loyalty" and a promise maybe I shouldn't have made, and it cost me.....so rah rah man I will not be for a given thing, so my mind is clear to do what needs to be done....make no doubt, GOLD WILL SHINE, but IMHO first it must exhibit DEFLATIONARY warnings, as SILVER IS/WILL do.........and should that much anticipated EXHAUSTION Bull leg begin for gold, it is its nature to begin with weak hands shook off....this will occur when gold falls below $400 IMHO...it will seperate those from what they thought they loved most, and have them slapping themselves for having done so sometime later on.....just look at the chart of NEM with an open mind and tell me what you see.....being the center of the gold universe.
http://www.safehaven.com/showarticle.cfm?id=3382 A MUST READ for those open to thinking Kondratieff "LONG" Waves as possible.
Comments about BONDS VS STOCKS a very valid point IMHO.
We are VERY EARLY in the Winter games.
I saw a tick chart of the SPX'S from Thursday, as 3:30 or thereabouts the SPX's were forcasting, as I said, about a 200 POINT drubbing was coming. THAT was the LOW point, it went vertical from then on to close !!!
WHO could have come in at that time, what trader or group of like thinking traders?....would be starting when we were sleeping and turned the direction of markets around at this time?
WHO thought a terrorist ATTACK, a deadly one, on sovereign soil, of a free nation, our closest ally was a good sign to buy like there was NO tomorrow? not to want stocks but was famished so? CRAVED THEM, HAD TO HAVE THEM?
IMHO FWIW.......a decided effort avoided a stock market crash, what good is coming from a showing of our suceptability, our vulneralbility? of terrorism coming to our shores again?
YOU KNOW the answer.
According to EWT, the market MUST close down shortly after open on Monday, or the rally most likely has legs, but doesn't change a thing.
I am thinking, Bond yields may rise one last time, given second chance (or more)for safe entry before NEXT employment report almost guaranteed to stink and miss estimates.....IMHO the strongest manipulation thru net birth death is over and we are going to see some very weak employment reports maybe thru end of year....this will put pressure on yields and keep bond rally going, I want treasuries if I can time them right.
IMHO, rally is gift horse in mouth, to be sold, and portfolio adjusted accordingly with LESS RISK and RAISE CASH,
TECH will slide first, impacted by real slowdown in economy and direction of stock options being expensed.
Think of the long cycles, think of what extremes exist in historical data and trends, think of how or what economy in history expanded and prospered when there were NO SAVINGS to invest....was loaded with historical extremes in all kinds of DEBT, where ASSET inflation was only wealth......
EVEN the effect of rising property taxes now begun to be felt, is putting a hurt on new home buyers and old.
WHERE condo's are bought because nothing else can be afforded.
WHere an economy and market are held up by the invisable hand.....these situations do not last forever.
It is not predicting their exact timing or end that is important, it is understanding that they do exist and act accordingly to prepare for leaner times.
PRINTING money after all, is only a fools game and never leads to sustainable enhancement.
http://www.safehaven.com/showarticle.cfm?id=3382 A MUST READ for those open to thinking Kondratieff "LONG" Waves as possible.
Comments about BONDS VS STOCKS a very valid point IMHO.
We are VERY EARLY in the Winter games.
I saw a tick chart of the SPX'S from Thursday, as 3:30 or thereabouts the SPX's were forcasting, as I said, about a 200 POINT drubbing was coming. THAT was the LOW point, it went vertical from then on to close !!!
WHO could have come in at that time, what trader or group of like thinking traders?....would be starting when we were sleeping and turned the direction of markets around at this time?
WHO thought a terrorist ATTACK, a deadly one, on sovereign soil, of a free nation, our closest ally was a good sign to buy like there was NO tomorrow? not to want stocks but was famished so? CRAVED THEM, HAD TO HAVE THEM?
IMHO FWIW.......a decided effort avoided a stock market crash, what good is coming from a showing of our suceptability, our vulneralbility? of terrorism coming to our shores again?
YOU KNOW the answer.
According to EWT, the market MUST close down shortly after open on Monday, or the rally most likely has legs, but doesn't change a thing.
I am thinking, Bond yields may rise one last time, given second chance (or more)for safe entry before NEXT employment report almost guaranteed to stink and miss estimates.....IMHO the strongest manipulation thru net birth death is over and we are going to see some very weak employment reports maybe thru end of year....this will put pressure on yields and keep bond rally going, I want treasuries if I can time them right.
IMHO, rally is gift horse in mouth, to be sold, and portfolio adjusted accordingly with LESS RISK and RAISE CASH,
TECH will slide first, impacted by real slowdown in economy and direction of stock options being expensed.
Think of the long cycles, think of what extremes exist in historical data and trends, think of how or what economy in history expanded and prospered when there were NO SAVINGS to invest....was loaded with historical extremes in all kinds of DEBT, where ASSET inflation was only wealth......
EVEN the effect of rising property taxes now begun to be felt, is putting a hurt on new home buyers and old.
WHERE condo's are bought because nothing else can be afforded.
WHere an economy and market are held up by the invisable hand.....these situations do not last forever.
It is not predicting their exact timing or end that is important, it is understanding that they do exist and act accordingly to prepare for leaner times.
PRINTING money after all, is only a fools game and never leads to sustainable enhancement.
Duratek
Friday, July 08, 2005
SPX VIX RATIO
The SPX/VIX Ratio is back to 105.84, you can see the triple top which appears to have taken shape.And also observe where this ratio was in 1999-2000. IMHO I think it has significance, and would be surprised if this ratio made a new leap to another level.
Certainly it should be near its top and not ready for another impulsive move up. Stockcharts.com provided chart.
Duratek
BEARS CRYING UNCLE
from YHOO finance:
3:59PM Afternoon Wrap:
Impressive extension of reversal :Although the market took a dive early on Thursday it quickly stabilized with the action from midday yesterday all through today a near vertical climb. The surge has come amid broad based participation with little other than energy (Oil Service -0.9%, Oil -0.3%, Natural Gas -0.2%) on the defensive today. Top performing groups include: Airline +3.8%, Biotech +2.8%, Networking +2.52, Computer-Hardware -2.4%, Semi +2.4%, Steel +2.3%, Casino +2.1%, Chemical +2%, Transportation +1.9%, Broker/Dealer +1.5%, Paper +1.4%, Internet +1.4%, REITs +1.4%.
3:52PM New 52-Week Highs: REITs and Retailers :Nearly every major REIT is at a new 52-week high today, along with a bunch of retailers. Tallies so far today for new highs vs lows are 394-16 (NYSE) and 175-19 (Nasdaq)... Sectors with good representation on the new high list today include Recent IPOs (CTRN, KNXA, WTI, VLCM, ZUMZ), Retail (BBY, BKS, CHRS, CTRN, COH, CVS, DKS, DBRN, GAP, GES, GME, JCP, KSS, STGS, VLCM), REITs (ACC, AKR, ARE, BRE, BXP, CLI, DDR, EOP, EQR, ESS, FMP, FRT, GGP, HCN, KIM, KPA, KRC, MAA, MAC, PEI, PNP, PSA, SKT, SLG, SPG, SSS, VNO).
3:31PM With market surging and talk that hedge funds are out jamming shorts, may want to look at this month's Heavily Shorted Stocks Report :Names of interest this month include Jamdat Mobile (JMDT), Dollar Financial (DLLR) and Deckers (DECK). See the Small Cap Focus page for the report.
*It would appear, with strength and breadth of advance, the bulls are not yet done. 412 new highs on NYSE.
OPEX next Friday, I don't know if today was in advance of that. gain, with turn around engineered or not in place, it's open season and the bears are on the run.
I will be out of town until Sunday, so this will be my last post until next week. It should be interesting read from Elliot Wave Theory tonight. I would ASSUME the wave count has changed and we obviously are not witnessing a 3rd of a 3rd. of which they seemed so sure of.
SPX/VIX ratio vaulted back 10 points today to close near its high reading. I suggest Monday could open with some follow through, but we could see some weakness near end of week, it may depend on more than earnings but guidance going into next quarter.
I do not feel stocks have the kind of earnings momentum going forward to warrant playing them, holding them. As quickly as a rally comes from nowhere so does the declines.
But I have no crystal ball, and the wind is at the back of the rally, it may have some legs left.
Weekly NDX technicals have been positive, but the bars have not been doing much since going positive.
I would use tight stops if deciding to play anything long.
BDI continues its decline, a rather odd development given the bullishness for the world's economies, I cannot disregard that.
EVEN with the HOOPLAH, we are below water here in the year ending in 5 2005.
Is this the start of the famed SUMMER RALLY going into August? I am not sure, but you can never outguess the market.
It is NOT easy sitting it out, maybe settling for small gains with MM or treasuries, yield funds. BUt a strategy of buying stocks only because they are going up is a losing strategy.
Can you find value? dividend yield? stocks selling for 1 or 2 X book value. 3 or 4 sales?
I can survive without additional income, I still believe we are in a secular bear market held at bay, and definately NOT the beginning of another long running secular bull mkt.....for reasons ad nauseum I have listed.
I trust the 100 year plus history of the market, and my reasoning based on that. Today was fun if you were long, maybe more coming, as long as you know when enough is enough, most will not see a problem until long after it is too late to get out.
Until the next time,
Duratek
3:59PM Afternoon Wrap:
Impressive extension of reversal :Although the market took a dive early on Thursday it quickly stabilized with the action from midday yesterday all through today a near vertical climb. The surge has come amid broad based participation with little other than energy (Oil Service -0.9%, Oil -0.3%, Natural Gas -0.2%) on the defensive today. Top performing groups include: Airline +3.8%, Biotech +2.8%, Networking +2.52, Computer-Hardware -2.4%, Semi +2.4%, Steel +2.3%, Casino +2.1%, Chemical +2%, Transportation +1.9%, Broker/Dealer +1.5%, Paper +1.4%, Internet +1.4%, REITs +1.4%.
3:52PM New 52-Week Highs: REITs and Retailers :Nearly every major REIT is at a new 52-week high today, along with a bunch of retailers. Tallies so far today for new highs vs lows are 394-16 (NYSE) and 175-19 (Nasdaq)... Sectors with good representation on the new high list today include Recent IPOs (CTRN, KNXA, WTI, VLCM, ZUMZ), Retail (BBY, BKS, CHRS, CTRN, COH, CVS, DKS, DBRN, GAP, GES, GME, JCP, KSS, STGS, VLCM), REITs (ACC, AKR, ARE, BRE, BXP, CLI, DDR, EOP, EQR, ESS, FMP, FRT, GGP, HCN, KIM, KPA, KRC, MAA, MAC, PEI, PNP, PSA, SKT, SLG, SPG, SSS, VNO).
3:31PM With market surging and talk that hedge funds are out jamming shorts, may want to look at this month's Heavily Shorted Stocks Report :Names of interest this month include Jamdat Mobile (JMDT), Dollar Financial (DLLR) and Deckers (DECK). See the Small Cap Focus page for the report.
*It would appear, with strength and breadth of advance, the bulls are not yet done. 412 new highs on NYSE.
OPEX next Friday, I don't know if today was in advance of that. gain, with turn around engineered or not in place, it's open season and the bears are on the run.
I will be out of town until Sunday, so this will be my last post until next week. It should be interesting read from Elliot Wave Theory tonight. I would ASSUME the wave count has changed and we obviously are not witnessing a 3rd of a 3rd. of which they seemed so sure of.
SPX/VIX ratio vaulted back 10 points today to close near its high reading. I suggest Monday could open with some follow through, but we could see some weakness near end of week, it may depend on more than earnings but guidance going into next quarter.
I do not feel stocks have the kind of earnings momentum going forward to warrant playing them, holding them. As quickly as a rally comes from nowhere so does the declines.
But I have no crystal ball, and the wind is at the back of the rally, it may have some legs left.
Weekly NDX technicals have been positive, but the bars have not been doing much since going positive.
I would use tight stops if deciding to play anything long.
BDI continues its decline, a rather odd development given the bullishness for the world's economies, I cannot disregard that.
EVEN with the HOOPLAH, we are below water here in the year ending in 5 2005.
Is this the start of the famed SUMMER RALLY going into August? I am not sure, but you can never outguess the market.
It is NOT easy sitting it out, maybe settling for small gains with MM or treasuries, yield funds. BUt a strategy of buying stocks only because they are going up is a losing strategy.
Can you find value? dividend yield? stocks selling for 1 or 2 X book value. 3 or 4 sales?
I can survive without additional income, I still believe we are in a secular bear market held at bay, and definately NOT the beginning of another long running secular bull mkt.....for reasons ad nauseum I have listed.
I trust the 100 year plus history of the market, and my reasoning based on that. Today was fun if you were long, maybe more coming, as long as you know when enough is enough, most will not see a problem until long after it is too late to get out.
Until the next time,
Duratek
No BEARS LEFT IN THE DEN
Sign says, "do not feed the bears"
Fools went in Wed night and bought the sold the futures based on London act of terrorism would cause a panic.
Was NEG 22 SPX NEG 36 NDX but Thursday action improved before open (invisible hand?) and market closed UP. Shorts (newbie) again BURNED sszzzztttttt. THOSE goofs will not be around when the market finally succumbs.
Emboldened by the miraculous recovery, of course let's party today what a relief, no big deal 50 dies etc, the market held up! An emotional response that isn't backed by very much.
This could be the final bullish surge, drawing back in the last holdouts, the bears are playing this bounce long......and I wonder about the distribution days.
That's cool, why should an act such as that determine the value of a company?
But I don't think investors care or are aware of the valuations they invest in. Business as usual.
D
Fools went in Wed night and bought the sold the futures based on London act of terrorism would cause a panic.
Was NEG 22 SPX NEG 36 NDX but Thursday action improved before open (invisible hand?) and market closed UP. Shorts (newbie) again BURNED sszzzztttttt. THOSE goofs will not be around when the market finally succumbs.
Emboldened by the miraculous recovery, of course let's party today what a relief, no big deal 50 dies etc, the market held up! An emotional response that isn't backed by very much.
This could be the final bullish surge, drawing back in the last holdouts, the bears are playing this bounce long......and I wonder about the distribution days.
That's cool, why should an act such as that determine the value of a company?
But I don't think investors care or are aware of the valuations they invest in. Business as usual.
D
Checking my condition my condition is in
Stocks Surge on Job Creation ReportFri 12:21PM ET - APA mixed job creation report carried enough good news to push stocks sharply higher Friday, even as crude oil futures climbed back above $61 per barrel. The Dow Jones industrials rose 110 points.
*No wage growth. Hours worked unchanged. Drop in unemployment rate? (as more gave up) MISS on jobs created, weaker than expected. (NET BIRTH DEATH ADDED 184,000 !!!)
SO as YHOO or CNN would tell us, an economy 3 years into "recovery" is having trouble creating jobs (need 150K per month JUST to keep up with new entries) so they have to create jobs out of thin air and manipulate the data to say what they want it to say, figuring when they have to reconcile it, nobody will be watching.
70% of Americans NOW own their home (or owe on a home I should say?) and I ask, how many are left to buy? don't say 30% !! LOL
ZERO savings rate can continue indefinately.Historical levels of credit an debt and go on forever, wealth by ASSET INFLATION is just as good as the old fashioned way.
Then I guess if you agree, stay in the market and good luck.
Duratek
*No wage growth. Hours worked unchanged. Drop in unemployment rate? (as more gave up) MISS on jobs created, weaker than expected. (NET BIRTH DEATH ADDED 184,000 !!!)
SO as YHOO or CNN would tell us, an economy 3 years into "recovery" is having trouble creating jobs (need 150K per month JUST to keep up with new entries) so they have to create jobs out of thin air and manipulate the data to say what they want it to say, figuring when they have to reconcile it, nobody will be watching.
70% of Americans NOW own their home (or owe on a home I should say?) and I ask, how many are left to buy? don't say 30% !! LOL
ZERO savings rate can continue indefinately.Historical levels of credit an debt and go on forever, wealth by ASSET INFLATION is just as good as the old fashioned way.
Then I guess if you agree, stay in the market and good luck.
Duratek
Thursday, July 07, 2005
"OUR WEALTH LOOKS GREAT ON PAPER"
Bull market ended between 1999 and mid 2000. We have had a correction that began in 2000 and ended late 2002 (OCT) 2003 (MArch) a 3 yr long Bear MArket, SECULAR in nature...so ended phase ONE.
To correct the dispair and VIX spikes of the Bear, PHASE ONE gets interupted by a CYCLICAL Bull Market, of which most bears didnt see coming....IMHO by its time and action is LONG in the tooth.
20 years PLUS long by some accords (1974 vs 1982 beginning) last bull was a RECORD in many ways.....TOP PE ratio etc.
Phase 2 of the bear mkt I think has begun, and this beleive it or not will be the painful part...yet NOT the end, that will be Phase 3.
Several reasons lead me to believe this.
Historic norms for the last 3 bear market bottoms.
Lack of 90% down days.
RECORD bullishness of bulls plurality over 140 weeks straight, only 9 weeks of bears on top even during worst bear in decades. I mentioned last bear had 40 plus weeks of bears on top 50% plus.
And what has replaced last economic driver of which was paper profits? MORE paper profits? and DIRT profits....MORE of the SAME asset inflation!! NOT INVESTMENT FROM SAVINGS.
How could THIS, consumer driven economy be sustainable?
DEBT LEVELS NEVER before seen.
SPX/VIX ratio's never before seen.
Bullishness never before seen.
Money growth never before seen.
$9 trillion derivitive market no one understands.
Greatest investor of all time? Buffet SOROS....making one of the worst bets of all time on dollar weakness at LOWS out $100's of mil probably close to $500 million.
5 years straight of record housing market and price appreciation.
Weakest recovery in history in relation to jobs and wage growth....even though we had record stimulus and tax cuts and lowest rates in 45 years held there for over 12 months.
Baltic Dry Index (RR stubbornly never mentions) crashing below BULL SUPPORT LINES.
NO YIELD WITHOUT RISK for saver wannabe's.
Losing our manufacturing base without anything tangable except military might to take its place as yet.
We are the rishest nation, yet we are SO POOR!
WHat do I worry about? HOW the historic bear market bottom valuations and measure get met.
Our wealth looks GREAT on paper, that's what worries me........ cycles dominant nature, winter is coming, I hope it is short. GET DEFENSIVE and IN CASH IMHO and maybe we can catch golds bottom under $400 IMHO
To correct the dispair and VIX spikes of the Bear, PHASE ONE gets interupted by a CYCLICAL Bull Market, of which most bears didnt see coming....IMHO by its time and action is LONG in the tooth.
20 years PLUS long by some accords (1974 vs 1982 beginning) last bull was a RECORD in many ways.....TOP PE ratio etc.
Phase 2 of the bear mkt I think has begun, and this beleive it or not will be the painful part...yet NOT the end, that will be Phase 3.
Several reasons lead me to believe this.
Historic norms for the last 3 bear market bottoms.
Lack of 90% down days.
RECORD bullishness of bulls plurality over 140 weeks straight, only 9 weeks of bears on top even during worst bear in decades. I mentioned last bear had 40 plus weeks of bears on top 50% plus.
And what has replaced last economic driver of which was paper profits? MORE paper profits? and DIRT profits....MORE of the SAME asset inflation!! NOT INVESTMENT FROM SAVINGS.
How could THIS, consumer driven economy be sustainable?
DEBT LEVELS NEVER before seen.
SPX/VIX ratio's never before seen.
Bullishness never before seen.
Money growth never before seen.
$9 trillion derivitive market no one understands.
Greatest investor of all time? Buffet SOROS....making one of the worst bets of all time on dollar weakness at LOWS out $100's of mil probably close to $500 million.
5 years straight of record housing market and price appreciation.
Weakest recovery in history in relation to jobs and wage growth....even though we had record stimulus and tax cuts and lowest rates in 45 years held there for over 12 months.
Baltic Dry Index (RR stubbornly never mentions) crashing below BULL SUPPORT LINES.
NO YIELD WITHOUT RISK for saver wannabe's.
Losing our manufacturing base without anything tangable except military might to take its place as yet.
We are the rishest nation, yet we are SO POOR!
WHat do I worry about? HOW the historic bear market bottom valuations and measure get met.
Our wealth looks GREAT on paper, that's what worries me........ cycles dominant nature, winter is coming, I hope it is short. GET DEFENSIVE and IN CASH IMHO and maybe we can catch golds bottom under $400 IMHO
Duratek
My latest TIRADE "It's different now"
Bull market ended between 1999 and mid 2000. We have had a correction that began in 2000 and ended late 2002 (OCT) 2003 (MArch) a 3 yr long Bear MArket, SECULAR in nature...so ended phase ONE.
To correct the dispair and VIX spikes of the Bear, PHASE ONE gets interupted by a CYCLICAL Bull Market, of which most bears didnt see coming....IMHO by its time and action is LONG in the tooth.
20 years PLUS long by some accords (1974 vs 1982 beginning) last bull was a RECORD in many ways.....TOP PE ratio etc.
Phase 2 of the bear mkt I think has begun, and this beleive it or not will be the painful part...yet NOT the end, that will be Phase 3.
Several reasons lead me to believe this.
Historic norms for the last 3 bear market bottoms.
Lack of 90% down days.
RECORD bullishness of bulls plurality over 140 weeks straight, only 9 weeks of bears on top even during worst bear in decades. I mentioned last bear had 40 plus weeks of bears on top 50% plus.
And what has replaced last economic driver of which was paper profits? MORE paper profits? and DIRT profits....MORE of the SAME asset inflation!! NOT INVESTMENT FROM SAVINGS.
How could THIS, consumer driven economy be sustainable?
DEBT LEVELS NEVER before seen.
SPX/VIX ratio's never before seen.
Bullishness never before seen.
Money growth never before seen.
$9 trillion derivitive market no one understands.
Greatest investor of all time? Buffet SOROS....making one of the worst bets of all time on dollar weakness at LOWS out $100's of mil probably close to $500 million.
5 years straight of record housing market and price appreciation.
Weakest recovery in history in relation to jobs and wage growth....even though we had record stimulus and tax cuts and lowest rates in 45 years held there for over 12 months.
Baltic Dry Index (RR stubbornly never mentions) crashing below BULL SUPPORT LINES.
NO YIELD WITHOUT RISK for saver wannabe's.
Losing our manufacturing base without anything tangable except military might to take its place as yet.
We are the rishest nation, yet we are SO POOR!
WHat do I worry about? HOW the historic bear market bottom valuations and measure get met.
Our wealth looks GREAT on paper, that's what worries me........ CYCLES
Duratek
To correct the dispair and VIX spikes of the Bear, PHASE ONE gets interupted by a CYCLICAL Bull Market, of which most bears didnt see coming....IMHO by its time and action is LONG in the tooth.
20 years PLUS long by some accords (1974 vs 1982 beginning) last bull was a RECORD in many ways.....TOP PE ratio etc.
Phase 2 of the bear mkt I think has begun, and this beleive it or not will be the painful part...yet NOT the end, that will be Phase 3.
Several reasons lead me to believe this.
Historic norms for the last 3 bear market bottoms.
Lack of 90% down days.
RECORD bullishness of bulls plurality over 140 weeks straight, only 9 weeks of bears on top even during worst bear in decades. I mentioned last bear had 40 plus weeks of bears on top 50% plus.
And what has replaced last economic driver of which was paper profits? MORE paper profits? and DIRT profits....MORE of the SAME asset inflation!! NOT INVESTMENT FROM SAVINGS.
How could THIS, consumer driven economy be sustainable?
DEBT LEVELS NEVER before seen.
SPX/VIX ratio's never before seen.
Bullishness never before seen.
Money growth never before seen.
$9 trillion derivitive market no one understands.
Greatest investor of all time? Buffet SOROS....making one of the worst bets of all time on dollar weakness at LOWS out $100's of mil probably close to $500 million.
5 years straight of record housing market and price appreciation.
Weakest recovery in history in relation to jobs and wage growth....even though we had record stimulus and tax cuts and lowest rates in 45 years held there for over 12 months.
Baltic Dry Index (RR stubbornly never mentions) crashing below BULL SUPPORT LINES.
NO YIELD WITHOUT RISK for saver wannabe's.
Losing our manufacturing base without anything tangable except military might to take its place as yet.
We are the rishest nation, yet we are SO POOR!
WHat do I worry about? HOW the historic bear market bottom valuations and measure get met.
Our wealth looks GREAT on paper, that's what worries me........ CYCLES
Duratek
What I said
"Let's not jump to any conclusions just yet, let's watch the action and volume, with Richard Russell's PTI still in bullish reading, anything is posisble."
Tomorrow will be pivotal in forth coming action IMHO, doom averted today, will there be follow thru, as suggested it's all about the hedgies as it has been
D
Tomorrow will be pivotal in forth coming action IMHO, doom averted today, will there be follow thru, as suggested it's all about the hedgies as it has been
D
BEARS on the RUN?
Fact is, and you could see from early CPC and VIX readings, a fade in fear, actually no fear was present.Having been thru 911, and seeing traders a run the market, little guy did nothing then did even less now...they're holding been told to been trained to been hypnotized to.....and it didn't happen here....so why worry and it did happen THERE, so maybe better put money over here.....
Americans are the buyer/consumer chotskie lover of last resort, and its obvious the tank ain't empty, niether is easy credit harder.Such a one sided affair, but we are not a bunch of squirels, no need to stash some nuts away for leaner times.
ALL, today's non reaction and all else is the SIGN OF THE TIMES, the new attitude of what me worry. I mentioned that todays events though horrible was a one time act, and that the underlying situation is what will bear down....the reaction lasted a lot less than I figured.......but
But remember the little guy wasn't calling his broker to sell at the open, we are watching the hedgies and traders black boxes duke it out.
And if shorts have been anhilated as some suggest, pity the market that doesn't have an ample supply of shorts to help buy on the way down.
Did today mark some kind of low? QUite honestly I don't know, I stil see us trapped in a narrow zone.
Some think little birdie knows employment report tomorrow will be NICE, then that birdie must know how NET BIRTH DEATH ADDITIONS will effect the number.Also if bonds are so unattractive compared to stocks, WHY do the yields keep falling?Be looking (I will) for money supply figures FRI, the 2005 highs still not broken in the zig zag pattern.
I hope I nor did I see today's act as a LIGHT BULB ding ding ding buying alert.....some did...somebody's did....and it began in FUTURES PIT before open...very reassuring a huge decline can be averted with a little help very reassuring.
As is this BLOG or any post I write....all an exercise......
But the excercise for me has always been to DEVELOP my OWN OPINION and share it, own it....and it really doesn't matter to me if I am wrong....I got here honestly.
10k WILL BE GUARDED LIKE Fort Knox, like a pair of Marilyn Monroe briefs......like an original Artie Shaw Record (huh?).....when it goes with authority, and the I's the have's know this....the illusion goes...........but all time highs for DOW seem just as illusive.
Today changes nothing as did the reaction change nothing as to what is real and where we are headed.
Americans are the buyer/consumer chotskie lover of last resort, and its obvious the tank ain't empty, niether is easy credit harder.Such a one sided affair, but we are not a bunch of squirels, no need to stash some nuts away for leaner times.
ALL, today's non reaction and all else is the SIGN OF THE TIMES, the new attitude of what me worry. I mentioned that todays events though horrible was a one time act, and that the underlying situation is what will bear down....the reaction lasted a lot less than I figured.......but
But remember the little guy wasn't calling his broker to sell at the open, we are watching the hedgies and traders black boxes duke it out.
And if shorts have been anhilated as some suggest, pity the market that doesn't have an ample supply of shorts to help buy on the way down.
Did today mark some kind of low? QUite honestly I don't know, I stil see us trapped in a narrow zone.
Some think little birdie knows employment report tomorrow will be NICE, then that birdie must know how NET BIRTH DEATH ADDITIONS will effect the number.Also if bonds are so unattractive compared to stocks, WHY do the yields keep falling?Be looking (I will) for money supply figures FRI, the 2005 highs still not broken in the zig zag pattern.
I hope I nor did I see today's act as a LIGHT BULB ding ding ding buying alert.....some did...somebody's did....and it began in FUTURES PIT before open...very reassuring a huge decline can be averted with a little help very reassuring.
As is this BLOG or any post I write....all an exercise......
But the excercise for me has always been to DEVELOP my OWN OPINION and share it, own it....and it really doesn't matter to me if I am wrong....I got here honestly.
10k WILL BE GUARDED LIKE Fort Knox, like a pair of Marilyn Monroe briefs......like an original Artie Shaw Record (huh?).....when it goes with authority, and the I's the have's know this....the illusion goes...........but all time highs for DOW seem just as illusive.
Today changes nothing as did the reaction change nothing as to what is real and where we are headed.
Duratek
SPECIAL MARKET UPDATE
DEAR READERS,
My best wishes go out to our friends in England as our hearts are heavy with your losses.
Market reaction is of course not bullish in reaction to today's events, but it hasn't been an all out panic neither. I do not expect this horrific terrorist act to change the complexion of the world economies.
Could it hasten the coming correction we have been discussing? well of course it could, but understand it was ALREADY in motion as others will say it was oil or it was this tragic act of violence.
Volume so far is not blowout, more sedate than one would imagine, those bullish will not change their minds over this, but figure it a buying opportunity.
Those of us concerned with dividend yields and valuations have either been severely picky about longs or on sidelines in cash of treasuries and maybe some gold.
Puts out numbering calls and VIX rising, but FAR from signaling any kind of emotional crescendo.
EWT thinks a 3rd of a 3rd wave has begun with STRONG declines possible during its duration.
It is IMHO, VERY LIKELY the TOP is already in this cyclical bull market, Bob Brinker and others disagree. I respect those dissenting opinions.....but I also know what other bear bottoms looked like. lest us not forget that.
Let's not jump to any conclusions just yet, let's watch the action and volume, with Richard Russell's PTI still in bullish reading, anything is posisble.
I see where yields have risen back above 4% recovering some half of thier gains, and I wonder if for the short term we have seen the lows in yields....this yet to be determined.
Duratek
My best wishes go out to our friends in England as our hearts are heavy with your losses.
Market reaction is of course not bullish in reaction to today's events, but it hasn't been an all out panic neither. I do not expect this horrific terrorist act to change the complexion of the world economies.
Could it hasten the coming correction we have been discussing? well of course it could, but understand it was ALREADY in motion as others will say it was oil or it was this tragic act of violence.
Volume so far is not blowout, more sedate than one would imagine, those bullish will not change their minds over this, but figure it a buying opportunity.
Those of us concerned with dividend yields and valuations have either been severely picky about longs or on sidelines in cash of treasuries and maybe some gold.
Puts out numbering calls and VIX rising, but FAR from signaling any kind of emotional crescendo.
EWT thinks a 3rd of a 3rd wave has begun with STRONG declines possible during its duration.
It is IMHO, VERY LIKELY the TOP is already in this cyclical bull market, Bob Brinker and others disagree. I respect those dissenting opinions.....but I also know what other bear bottoms looked like. lest us not forget that.
Let's not jump to any conclusions just yet, let's watch the action and volume, with Richard Russell's PTI still in bullish reading, anything is posisble.
I see where yields have risen back above 4% recovering some half of thier gains, and I wonder if for the short term we have seen the lows in yields....this yet to be determined.
Duratek
TIME LINE OF EXPLOSIONS IN LONDON!!
6 BLASTS ROCK LONDON Terorists suspected.
I am saddend by this, if ALQueda.......a brutal reminder they are still out there somehwere wanting to attack us.
D
I am saddend by this, if ALQueda.......a brutal reminder they are still out there somehwere wanting to attack us.
D
Wednesday, July 06, 2005
DEVIL IN THE DETAILS
Auto Discounts Help Boost Service Sector
Wed 2:05PM ET - AP
The huge discounts automakers offered on new cars last month did more than clear out dealers' inventory -- they helped boost activity in the nation's service sector at a faster than expected pace.
**SO basically, like aircraft orders, discounts helped an otherwise DECLINING situation look better than actually is.
DEVIL in the details DEVIL!
**SO, we continue to borrow from future deman at the cost of future profits, or any profits at all. Now other big 2 must match. YET, Honda, Toyota etc see NO need to give away the farm to make a sale.
It is an issue of quality over price.
It stinks of desperation.
D
Wed 2:05PM ET - AP
The huge discounts automakers offered on new cars last month did more than clear out dealers' inventory -- they helped boost activity in the nation's service sector at a faster than expected pace.
**SO basically, like aircraft orders, discounts helped an otherwise DECLINING situation look better than actually is.
DEVIL in the details DEVIL!
**SO, we continue to borrow from future deman at the cost of future profits, or any profits at all. Now other big 2 must match. YET, Honda, Toyota etc see NO need to give away the farm to make a sale.
It is an issue of quality over price.
It stinks of desperation.
D
ONION PEELED ON US FACTORY ORDERS
U.S. Factory Orders Rose 2.9% in May; Ex-Trans. Fell 0.1%
July 5 (Bloomberg) -- U.S. factory orders increased in May by the most in a year, mainly due to a surge in bookings for commercial aircraft. Demand for business equipment declined for a third month in four.
Factories received 2.9 percent more orders during the month, the Commerce Department said today in Washington. The rise followed a 0.7 percent increase in April. Excluding transportation equipment, orders declined 0.1 percent after decreasing 0.4 percent.
New high for the move in FTSE not confirmed by RSI or MACD showing slight BEARISH divergence (lower highs), could be close to a top.
European markets opened higher, so I imagine we get some green before 10 AM data on services.
LOOK at GROSS divergence in RSI and MACD on the important indicator , the SPX/VIX ratio even to a layman is NOT poised at beginning of an uptrend, but historically speaking putting the finishing touches which will turn out to be an excellent indicator of a MAJOR TOP being put in place. IMHO
BWDIK?
Duratek
D
July 5 (Bloomberg) -- U.S. factory orders increased in May by the most in a year, mainly due to a surge in bookings for commercial aircraft. Demand for business equipment declined for a third month in four.
Factories received 2.9 percent more orders during the month, the Commerce Department said today in Washington. The rise followed a 0.7 percent increase in April. Excluding transportation equipment, orders declined 0.1 percent after decreasing 0.4 percent.
New high for the move in FTSE not confirmed by RSI or MACD showing slight BEARISH divergence (lower highs), could be close to a top.
European markets opened higher, so I imagine we get some green before 10 AM data on services.
LOOK at GROSS divergence in RSI and MACD on the important indicator , the SPX/VIX ratio even to a layman is NOT poised at beginning of an uptrend, but historically speaking putting the finishing touches which will turn out to be an excellent indicator of a MAJOR TOP being put in place. IMHO
BWDIK?
Duratek
D
Tuesday, July 05, 2005
Today's Action and a piece on Housing SPeculation
What would it take to excite me, impress me? More than a manufacturing report where all the gains come from aircraft sales. The basic economy isnot as healthy as it is being reported. IMHO SO, for now, 6 months into 2005, not too impressed.
Housing Speculation is More Rampant Than You Think
By: Peter Schiff, Euro Pacific Capital, Inc.
As the “debate” over the existence of a housing bubble intensifies, both sides are likely to be proven wrong when it comes to predictions for housing declines should the bubble burst. Most bubble advocates believe that rather than collapsing, housing prices will either rise more slowly, fall slightly, or simply stop going up, thereby allowing stagnant incomes to catch up with surging prices. However, a closer look at the facts reveals it is far more likely to burst with as big a bang as did the NASDAQ five years ago.
One of the main arguments (more wishful thinking than reasoned perspective) against a precipitous drop is that homeowners will not quickly unload houses in the same manner stock investors bailed out of losing equity positions. For example, Treasury Secretary John Snow recently argued against the existence of a housing bubble by claiming, “houses are not like stocks, pork bellies, or gold, and are therefore not prone to bubbles.” He claimed that unlike buyers of those other assets, Americans are buying houses because everyone knows that houses are great investments. Setting aside the self-serving nature of his dismissal of even the possibility of a housing bubble, his comments ironically provided some of the most convincing evidence in support of a housing bubble that I have ever heard.
One reason few expect housing prices to collapse is the mentality that homeowners need to live somewhere and as such will be reluctant to sell their residences. This argument ignores that fact that so many of today’s homebuyers do not occupy their properties as primary residences, and that relatively attractive rentals provide homeowners with viable, none-ownership alternatives for shelter. However, a more in-depth analysis reveals that contrary to prevailing rhetoric, housing speculation is not only rampant, but also far more pervasive than the data suggests, perhaps even more widespread than was the case with tech stocks during the NASDAQ bubble.
According to a recent study by the National Association of Realtors, 23% of homebuyers specifically identified their purchases as investments. Another 13% identified their purchases as vacation properties. Since rental yields are so low, those buying properties as investments are by definition speculating. However, buyers of vacation homes, are also speculating, as inherent in the decision to buy such properties is the expectation of price appreciation. Absent such a forecast, it is far more economical to vacation in hotels. Further, as owners of rental or vacation properties do not occupy their properties as principal residences, a change in sentiment as to future price appreciation could easily cause such owners to sell, or worse, to walk away from mortgages in circumstances of negative equity.
However, the mere fact that owners occupy their houses as principle residences does not necessarily remove such properties from the category of speculative investments. For example, 58% of recent California homebuyers financed their purchases using ARMs (with percentages in pricier counties exceeding 80%). The primary reason given to justify such mortgages was owners’ intentions to resell the properties in relatively short periods of time. Such buying is clearly speculative, regardless of the speculator’s intention to occupy the property. Given high transaction costs and low relative rents available in markets where such mortgages are most pervasive, absent the expectation of rapid price appreciation, such short-term buyers would clearly be better off renting.
Also, the fact that so many buyers are using interest-only, or negative-amortization mortgages, suggests even greater degrees of speculation. Since none of the monthly payments on such loans reduce the principal of the mortgages, buyers utilizing them are no better off than renters. However, since they must also pay property taxes and maintenance, interest only buyers actually get the worst of both worlds. They rent property from lenders, yet get stuck with all the headaches associated with ownership. The only way interest-only buyers build equity is though price appreciation. In other words, they are the ultimate speculators.
The reasons for such unbridled, rampant speculation are clear. According to the Economist, a recent survey showed that the Los Angeles homebuyers expected an average 22% annual home price appreciation over the next 10 years. Given that medium home prices in Los Angeles already exceeds $500,000, such an appreciation rate would lift that figure to over 3.6 million, providing homeowners with over $300,000 per year in annual “income” simply because they own a house (tax free if they extract those gains though debt). Such unrealistic expectations provide compelling incentives to buy. It also helps explain why homeowners are willing to devote record high percentages of their current incomes to covering mortgage payments. When price appreciation is expected to produce annual “income” ten times greater than mortgage payments, the expected cost of such loans is zero. The new “reality” for many homebuyers is that rather than regarding homes as expenses, they rely on them as sources of income.
With current medium home prices in Los Angeles already ten times medium family income of approximately $50,000, one wonders just how typical Angelinos can afford to buy. The short answer is, they can’t. That is why such a large percentage choose interest only mortgages. Again, since interest-only mortgages require no repayment of principle, borrowers are not really buying, since they will never actually own their homes. Such loans merely enable borrowers to pretend to buy houses that they cannot actually afford. Thus the illusions of legitimate home values and the sustainability of future price increases are maintained.
In fact, so intoxicating is the expected payoff from home ownership, that the incentives to lie to qualify for mortgages have never been greater, and as it so conveniently happens, easier to do. Trendy no-documentation mortgages allow almost anyone to buy a house, regardless of employment status, income, financial condition, or credit history. The fact that purchases can also be financed with zero down, means that speculators can gamble with no risk what-so-ever should prices fall. Also, the availability of cash-out refinancing means that owners can press their bets while simultaneously taking their winnings off the table.
Given such incentives, is it any wonder that housing speculation is so rampant? Should we be amazed that when reckless lenders offer buyers can’t lose bets, with huge expected payoffs, that so many want a piece of the action? The fact that the majority of today’s homebuyers are actually speculators in disguise, suggests that when the trend turns, prices will drop precipitously. Far from holding on to their homes, as even most housing bears suggest, owner/speculators will sell in droves, or worse, simply walk away from their bets, leaving lenders and tax payers to cover their losses. -- Posted Tuesday, 5 July 2005
- Peter Schiff C.E.O. and Chief Global StrategistMr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nation's leading newspapers, including The Wall Street Journal, Barron's, Investor's Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register. Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services. Previous Articles by Peter Schiff, Euro Pacific Capital, Inc.
Housing Speculation is More Rampant Than You Think
By: Peter Schiff, Euro Pacific Capital, Inc.
As the “debate” over the existence of a housing bubble intensifies, both sides are likely to be proven wrong when it comes to predictions for housing declines should the bubble burst. Most bubble advocates believe that rather than collapsing, housing prices will either rise more slowly, fall slightly, or simply stop going up, thereby allowing stagnant incomes to catch up with surging prices. However, a closer look at the facts reveals it is far more likely to burst with as big a bang as did the NASDAQ five years ago.
One of the main arguments (more wishful thinking than reasoned perspective) against a precipitous drop is that homeowners will not quickly unload houses in the same manner stock investors bailed out of losing equity positions. For example, Treasury Secretary John Snow recently argued against the existence of a housing bubble by claiming, “houses are not like stocks, pork bellies, or gold, and are therefore not prone to bubbles.” He claimed that unlike buyers of those other assets, Americans are buying houses because everyone knows that houses are great investments. Setting aside the self-serving nature of his dismissal of even the possibility of a housing bubble, his comments ironically provided some of the most convincing evidence in support of a housing bubble that I have ever heard.
One reason few expect housing prices to collapse is the mentality that homeowners need to live somewhere and as such will be reluctant to sell their residences. This argument ignores that fact that so many of today’s homebuyers do not occupy their properties as primary residences, and that relatively attractive rentals provide homeowners with viable, none-ownership alternatives for shelter. However, a more in-depth analysis reveals that contrary to prevailing rhetoric, housing speculation is not only rampant, but also far more pervasive than the data suggests, perhaps even more widespread than was the case with tech stocks during the NASDAQ bubble.
According to a recent study by the National Association of Realtors, 23% of homebuyers specifically identified their purchases as investments. Another 13% identified their purchases as vacation properties. Since rental yields are so low, those buying properties as investments are by definition speculating. However, buyers of vacation homes, are also speculating, as inherent in the decision to buy such properties is the expectation of price appreciation. Absent such a forecast, it is far more economical to vacation in hotels. Further, as owners of rental or vacation properties do not occupy their properties as principal residences, a change in sentiment as to future price appreciation could easily cause such owners to sell, or worse, to walk away from mortgages in circumstances of negative equity.
However, the mere fact that owners occupy their houses as principle residences does not necessarily remove such properties from the category of speculative investments. For example, 58% of recent California homebuyers financed their purchases using ARMs (with percentages in pricier counties exceeding 80%). The primary reason given to justify such mortgages was owners’ intentions to resell the properties in relatively short periods of time. Such buying is clearly speculative, regardless of the speculator’s intention to occupy the property. Given high transaction costs and low relative rents available in markets where such mortgages are most pervasive, absent the expectation of rapid price appreciation, such short-term buyers would clearly be better off renting.
Also, the fact that so many buyers are using interest-only, or negative-amortization mortgages, suggests even greater degrees of speculation. Since none of the monthly payments on such loans reduce the principal of the mortgages, buyers utilizing them are no better off than renters. However, since they must also pay property taxes and maintenance, interest only buyers actually get the worst of both worlds. They rent property from lenders, yet get stuck with all the headaches associated with ownership. The only way interest-only buyers build equity is though price appreciation. In other words, they are the ultimate speculators.
The reasons for such unbridled, rampant speculation are clear. According to the Economist, a recent survey showed that the Los Angeles homebuyers expected an average 22% annual home price appreciation over the next 10 years. Given that medium home prices in Los Angeles already exceeds $500,000, such an appreciation rate would lift that figure to over 3.6 million, providing homeowners with over $300,000 per year in annual “income” simply because they own a house (tax free if they extract those gains though debt). Such unrealistic expectations provide compelling incentives to buy. It also helps explain why homeowners are willing to devote record high percentages of their current incomes to covering mortgage payments. When price appreciation is expected to produce annual “income” ten times greater than mortgage payments, the expected cost of such loans is zero. The new “reality” for many homebuyers is that rather than regarding homes as expenses, they rely on them as sources of income.
With current medium home prices in Los Angeles already ten times medium family income of approximately $50,000, one wonders just how typical Angelinos can afford to buy. The short answer is, they can’t. That is why such a large percentage choose interest only mortgages. Again, since interest-only mortgages require no repayment of principle, borrowers are not really buying, since they will never actually own their homes. Such loans merely enable borrowers to pretend to buy houses that they cannot actually afford. Thus the illusions of legitimate home values and the sustainability of future price increases are maintained.
In fact, so intoxicating is the expected payoff from home ownership, that the incentives to lie to qualify for mortgages have never been greater, and as it so conveniently happens, easier to do. Trendy no-documentation mortgages allow almost anyone to buy a house, regardless of employment status, income, financial condition, or credit history. The fact that purchases can also be financed with zero down, means that speculators can gamble with no risk what-so-ever should prices fall. Also, the availability of cash-out refinancing means that owners can press their bets while simultaneously taking their winnings off the table.
Given such incentives, is it any wonder that housing speculation is so rampant? Should we be amazed that when reckless lenders offer buyers can’t lose bets, with huge expected payoffs, that so many want a piece of the action? The fact that the majority of today’s homebuyers are actually speculators in disguise, suggests that when the trend turns, prices will drop precipitously. Far from holding on to their homes, as even most housing bears suggest, owner/speculators will sell in droves, or worse, simply walk away from their bets, leaving lenders and tax payers to cover their losses. -- Posted Tuesday, 5 July 2005
- Peter Schiff C.E.O. and Chief Global StrategistMr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nation's leading newspapers, including The Wall Street Journal, Barron's, Investor's Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register. Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services. Previous Articles by Peter Schiff, Euro Pacific Capital, Inc.
HEDONIC INFLATING OF US ECONOMIC GROWTH
America's recovery is not what it seems
By Kurt Richebacher
FT.com site; Sep 04, 2003
American economic recovery is the world's great hope. So there was widespread satisfaction when the US Commerce Department last week revised its estimate of annual growth in the second quarter to 3.1 per cent, up from an earlier estimate of 2.4 per cent. A closer look at the numbers, however, tells a somewhat gloomier story.
Much of the growth in gross domestic product is due to a big jump in defence spending, which provided $40.6bn of the reported GDP growth of $73.1bn. Yet while the commerce department and some media reports noted that defence spending had risen by 44 per cent at an annual rate, many commentators failed to mention its role in raising GDP growth. All too often nowadays, new economic data are examined with a single question in mind: are they better than expected? Close analysis with a longer-term perspective is in short supply.
Still, the commerce department report seemed to contain good news on capital investment. "Real non- residential fixed investment increased 6.9 per cent in the second quarter, in contrast to a decrease of 4.4 per cent in the first," it said. "Non-residential structures increased 4.8 per cent, in contrast to a decrease of 2.9 per cent. Equipment and software increased by 7.5 per cent, in contrast to a decrease of 4.8 per cent. Real residential fixed investment increased 6 per cent, compared with an increase of 10.1 per cent." These numbers suggest a vigorous turn in capital spending. However, their strength owes a lot to the singular US habit of annualising many figures. Quarterly data, in other words, are about four times the reality that would be reported in other countries.
So what exactly did happen in the private sector? Consumption increased by $62.5bn and business fixed investment - vital for a robust, self-sustaining recovery - by $22.4bn.
A single component of business fixed investment accounted for more than its overall increase. Investment in computers soared by $38.4bn, or 12 per cent, from $319.1bn to $357.5bn.
The trouble is that much of this boom-like increase in computer investment never occurred. The apparent surge is a consequence of the hedonic deflator that US government statisticians use when measuring computer output and investment. The aim is to capture quality improvements by calculating how much it would have cost in 1996 to buy a computer of equivalent power to today's machines.
Measured in current dollars, however, this spending rose a lacklustre $6.3bn, from $76.3bn in the previous quarter to $82.6bn - far below previous peak levels. In other words, hedonic pricing produced $32.1bn of GDP in real terms, about 43.9 per cent of the reported second-quarter GDP increase of $73.1bn. In its absence, GDP would have grown a mere $41bn, implying a growth rate of 1.68 per cent. The important thing about hedonic pricing is that it measures dollars that nobody pays and nobody receives. And it grossly distorts international comparisons.
Recessions and times of slow growth are when businesses and consumers normally retrench, correcting boom-time spending excesses. A full-scale recovery, in turn, requires the economy's return to a sustainable pattern of consumption, investment and saving.
None of these adjustments is happening in the US. Alan Greenspan, the Federal Reserve chairman, has been fighting the consequences of excessive monetary looseness with still more of the same. Inevitably, economic and financial fundamentals, such as profits, national savings, debt levels, balance sheets and the trade deficit, continue to deteriorate across the board.
Profits, as calculated in the GDP and income accounts, are down again. Total before-tax profits were $591.5bn in the second quarter, compared with $621.6bn in the first quarter. Non- financial profits were $359.2bn, after $391.3bn in the first quarter. As div- idends are rising while profits fall, credit-financed dividends have soared in the non-financial sector to $102.8bn.
The private sector's strength derived completely from bubble-driven consumer spending. But that bubble has been pricked by the sharp rise in long-term interest rates. Mortgage re- financing activity is falling sharply.
Mr Greenspan has turned bubble creation into a virtue. In days of yore, asset prices were viewed as a by- product of underlying economic conditions. Now, by contrast, the real economy is heavily dependent on asset inflation to fuel borrowing and spending. These conditions are more favourable to recession than to recovery.
By Kurt Richebacher
FT.com site; Sep 04, 2003
American economic recovery is the world's great hope. So there was widespread satisfaction when the US Commerce Department last week revised its estimate of annual growth in the second quarter to 3.1 per cent, up from an earlier estimate of 2.4 per cent. A closer look at the numbers, however, tells a somewhat gloomier story.
Much of the growth in gross domestic product is due to a big jump in defence spending, which provided $40.6bn of the reported GDP growth of $73.1bn. Yet while the commerce department and some media reports noted that defence spending had risen by 44 per cent at an annual rate, many commentators failed to mention its role in raising GDP growth. All too often nowadays, new economic data are examined with a single question in mind: are they better than expected? Close analysis with a longer-term perspective is in short supply.
Still, the commerce department report seemed to contain good news on capital investment. "Real non- residential fixed investment increased 6.9 per cent in the second quarter, in contrast to a decrease of 4.4 per cent in the first," it said. "Non-residential structures increased 4.8 per cent, in contrast to a decrease of 2.9 per cent. Equipment and software increased by 7.5 per cent, in contrast to a decrease of 4.8 per cent. Real residential fixed investment increased 6 per cent, compared with an increase of 10.1 per cent." These numbers suggest a vigorous turn in capital spending. However, their strength owes a lot to the singular US habit of annualising many figures. Quarterly data, in other words, are about four times the reality that would be reported in other countries.
So what exactly did happen in the private sector? Consumption increased by $62.5bn and business fixed investment - vital for a robust, self-sustaining recovery - by $22.4bn.
A single component of business fixed investment accounted for more than its overall increase. Investment in computers soared by $38.4bn, or 12 per cent, from $319.1bn to $357.5bn.
The trouble is that much of this boom-like increase in computer investment never occurred. The apparent surge is a consequence of the hedonic deflator that US government statisticians use when measuring computer output and investment. The aim is to capture quality improvements by calculating how much it would have cost in 1996 to buy a computer of equivalent power to today's machines.
Measured in current dollars, however, this spending rose a lacklustre $6.3bn, from $76.3bn in the previous quarter to $82.6bn - far below previous peak levels. In other words, hedonic pricing produced $32.1bn of GDP in real terms, about 43.9 per cent of the reported second-quarter GDP increase of $73.1bn. In its absence, GDP would have grown a mere $41bn, implying a growth rate of 1.68 per cent. The important thing about hedonic pricing is that it measures dollars that nobody pays and nobody receives. And it grossly distorts international comparisons.
Recessions and times of slow growth are when businesses and consumers normally retrench, correcting boom-time spending excesses. A full-scale recovery, in turn, requires the economy's return to a sustainable pattern of consumption, investment and saving.
None of these adjustments is happening in the US. Alan Greenspan, the Federal Reserve chairman, has been fighting the consequences of excessive monetary looseness with still more of the same. Inevitably, economic and financial fundamentals, such as profits, national savings, debt levels, balance sheets and the trade deficit, continue to deteriorate across the board.
Profits, as calculated in the GDP and income accounts, are down again. Total before-tax profits were $591.5bn in the second quarter, compared with $621.6bn in the first quarter. Non- financial profits were $359.2bn, after $391.3bn in the first quarter. As div- idends are rising while profits fall, credit-financed dividends have soared in the non-financial sector to $102.8bn.
The private sector's strength derived completely from bubble-driven consumer spending. But that bubble has been pricked by the sharp rise in long-term interest rates. Mortgage re- financing activity is falling sharply.
Mr Greenspan has turned bubble creation into a virtue. In days of yore, asset prices were viewed as a by- product of underlying economic conditions. Now, by contrast, the real economy is heavily dependent on asset inflation to fuel borrowing and spending. These conditions are more favourable to recession than to recovery.
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