James,..Re:The FED should cut rates.
Are you suggesting that the Fed should become the World's Central Banker? I would remind you that events external to the US are not in the mandate of the US Central Banker's. For more evidence to this fact, read carefully AG's reply when questioned about a rate ease last week. From thestreet.com.
Message 5643988
The Invisible Mouth: Greenspan and Me
By James Padinha
Economics Correspondent
8/28/98 3:15 PM ET
House Guest
Short of a real threat to U.S. GDP growth, the Fed is not going to lower the federal funds rate for the simple reason that it won't fix the Japanese banking system or stabilize the Russian ruble.
If and when a decline in the U.S. stock market depresses consumer confidence and consumer spending, putting the U.S. economy at risk, the Fed will adhere to its mandate of fostering price stability and full employment. Then, and not before.
I don't understand your comment about attempt to buoy the U.S. markets. If you carefully review all the US economic numbers, you may find that the economy is doing very nicely. Markets, on the other hand, are prone to rumor and hysteria, i.e. witness the sell off associated with the ruble devaluation.
re:It's the health of the economy that really moves the market.. Actually this is true and once it is again demonstrated that the US domestic economy is healthy via good earnings, then the markets will probably adjust accordingly.
Re:With earnings projections being lowered in the coming Qtrs a recession seems likely and cannot be postponed indefinitely by artificial monetary manipulations
I don't understand what you mean by artificial monetary manipulations nor is it clear that earnings projections are being lowered for all issues.
The whole family of yield curves has moved to a lower level but except for the 2 year issue having a higher rate than the 5 year, the curve is not yet inverted. In other words, long rates are still at 5.31% and short rates are below 5%. These rates are lower than the overnight lending rate; however, this shift is due to global circumstances and not domestic circumstances.
As evidenced from Friday's jobs report, employment is still at multiyear lows and wages are growing at a 4.3% annual rate. Under these circumstances, it is likely that consumer confidence will remain at higher levels therefore supporting and lengthening this expansion. Since the consumer contributes approximately 68% to the GDP numbers, it seems unlikely that under these circumstances we would experience any recessionary tendencies.
Finally, James Padhina makes an excellent case why the Fed isn't going to ease in his Aug. 31 piece about For the Fed to Ease
which essentially states that 4 things have to happen.
1- Unemployment has to increase
2- Consumption has to evaporate- consumer is still strong - witness recent auto sales
3- Confidence numbers have to come way down
4- Money supply has to contract- still growing at above target
I like Padhina's columns because besides being a witty journalist, he includes links to all the numbers included in the text. In other words, every word is substantiated.
Regards,
Lee
PS - If you want charts and graphs to substantiate anything discussed above, please let me know. |
