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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: gregor_us who wrote (4462)	4/16/2004 12:42:59 AM
From: mishedlo	Respond to of 116555

A Day Late and A Dollar Short [excellent article - these are the snips that I like best - mish] Commodities, particularly the metals, made a spectacular performance in 2003. To many observers, this is an indication of inflation and economic recovery. We disagree. The rally was ignited by weakness in the dollar then fueled by misleading signals of recovery indicated by a sharp rise in GDP late in 2003. We believe that the GDP growth figures of 2003 are the direct result of massive stimulation from the government and also due to the deprecating dollar. These conditions are not likely to last much longer. The rise in commodities went parabolic in early 2004 and now seems to be sustained by speculation and hoarding. As of this writing, the entire metals complex is making a sharp correction coincident with a sharp rise in the dollar index. Although not yet indicating a true trend change, this action supports our belief that a rising dollar will reverse the commodities rally. In fact, the rise in commodity prices may be the trigger for a recession and cause its own reversal. What Would Happen In A Dollar Short Squeeze? A dollar short squeeze would be functionally similar to a general deflation, but could unfold much faster. Deflation is a relative scarcity of cash and/or credit that causes a general price decline in a wide range of products, services, and assets. In other words cash becomes more valuable during a deflation. It would be triggered by some event that sucks enough liquidity out of the system to cause a chain reaction and serial debt defaults. Deflation is almost always accompanied by recession. The deeper the deflation, the deeper the recession. This is a scary scenario and one that few people see as a risk factor. In fact, in 2003 we witnessed the exact opposite effect as almost every asset class went up in dollar terms due to a weak dollar. There were a number of reasons for this, but it was largely the result of a vast increase in credit that was chasing almost every product and asset in sight. In essence, this was the effect of a large number of people and investors going short the dollar by putting more credit into circulation and using it to buy stuff. It would seem that we have inflationary expectations in the system and these usually take time to work out. However, there have been several instances in history where a sharp price inflation was followed by a sharp deflation. In 1921 and in 1949, the US experienced a sudden deflation after several years of double digit inflation. This shows that inflationary expectations, and by extension the dollar, can turn on a dime (pardon the pun). financialsense.com

To: gregor_us who wrote (4462)	4/16/2004 12:47:52 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Fed Is Likely Many Months From Raising Rates: John M. Berry April 16 (Bloomberg) -- Federal Reserve officials likely remain many months away from any decision to raise their 1 percent target for overnight interest rates. Recent data for March showing a strong payroll gain and unexpectedly sharp increases in retail sales and consumer prices have caused some analysts to predict a Fed rate move soon. One, speaking on CNBC this week, even said the Federal Open Market Committee would raise rates at its next meeting, May 4. The reality is that Fed officials will need far more than a month or two of good payroll numbers and a month or two of figures showing rising inflation rates before they are ready to act. Analysts ``always tend to make too much of a few numbers'' said Gary Stern, president of the Minneapolis Federal Reserve Bank, in an interview last week. ``We are not going to get carried away'' by two or three months' worth of numbers in either direction. Fed Vice Chairman Roger W. Ferguson Jr. conveyed the same message in a speech in San Francisco last week. Ferguson said that the 308,000 increase in payroll jobs in March ``was encouraging'' and the expectation by economic forecasters that employment will continue to improve is ``a reasonable assessment.'' Hiring Could Fall Short ``Nonetheless,'' he cautioned, ``one cannot definitively rule out the possibility that hiring will fall short of expectations over the next several months as it had up until the most recent report. In particular, the lackluster performance we have seen in the labor market, even as real GDP has been moving up strongly, raises the question of whether an unusually large portion of the job cuts implemented by firms in recent years represent permanent layoffs that will only gradually be offset by job creation elsewhere in the economy.'' The words of Stern and Ferguson aren't those of policy makers about to pull the trigger on a rate increase anytime soon. Nor is there any reason to think that their analysis isn't generally shared by most other FOMC members. While Stern isn't a voting member of the committee this year, he otherwise participates fully in the meetings, and his views and those of other non-voting reserve bank presidents carry as much weight as that of those who do vote. Not Ignoring Data None of this means Fed officials are ignoring any incoming data. The March payroll figures eased a concern that even with all the monetary and fiscal stimulus flowing into the economy, growth might falter once more. On the other hand, with interest rates so low, policy makers know they don't have a lot of traditional ammunition left to use if growth isn't sustained at a healthy pace. So, in Fed Chairman Alan Greenspan's risk-management approach, the cost of being wrong on the downside would be much higher than if growth and inflation were to exceed expectations. And with inflation so low, the officials have been and are still willing to wait to raise rates until the evidence of the need to do so is unmistakably clear. As Stern put it, ``Once you have achieved price stability, you don't want inflation to go lower.'' In terms of assessing the outlook for inflation, Fed officials tend to look at fundamentals, particularly the trend in unit labor costs, which represent about 70 percent of all costs for an average U.S. company. For non-farm businesses, unit labor costs fell 1.2 percent last year after being down 2.4 percent in 2002. Moreover, they probably dropped a bit more in the first quarter of this year. `Benign' Inflation Outlook With labor costs falling, growth in other industrial countries sluggish and China and India rapidly expanding their production capacity, Stern said, ``I do think the inflation outlook is certainly benign for the next year at least.'' Given his reasoning, it isn't likely he has changed that view since the release of the March consumer price index. Nevertheless, Greenspan and probably every other Fed official who has spoken publicly in recent months have said that at some point they will raise their 1 percent target, which is much too low to be consistent with continued low inflation and a healthy economy operating close to its potential. Well before that happens, Fed officials undoubtedly will begin to recognize how the economic landscape is gradually changing and moving them toward a higher rate. The May 4 Meeting The first such change could appear in the FOMC statement issued after the May 4 meeting. In their description of the economy, the officials certainly will note the improvement in the payroll figures, and probably that inflation appears to have stabilized. In keeping with the latter point, the committee may also decide it's time to say that the risk of a further decline in inflation is now balanced with that of a rise in inflation. Some analysts expect the FOMC to drop the language saying the committee ``believes that it can be patient in removing its policy accommodation.'' That seems much less likely. When It Raises Rates Perhaps the key thing to keep in mind about Fed policy in coming months is this: Unlike any other time since the early 1960s, when it starts to raise rates, the central bank won't have in mind the goal of reducing inflation. It will only want to keep it at a low level, and many if not all of the policy makers would actually be a bit more comfortable with an inflation rate closer to 2 percent than 1 percent. That means that the Fed not only will have been patient about when it starts to raise rates, but it may also choose to be patient about how fast and how far it raises them, though that will depend what policy makers see happening after the first rate increase. Greenspan's testimony before Congress' Joint Economic Committee on Wednesday may help clarify some of the Fed's intentions. quote.bloomberg.com

To: gregor_us who wrote (4462)	4/16/2004 8:22:38 AM
From: mishedlo	Respond to of 116555

China Q1 vehicle sales growth slows, 2004 auto prices to fall 10 pct - Friday, April 16, 2004 9:52:39 AM BEIJING (AFX-ASIA) - Vehicle sales growth in China, the world's fourth-largest car market, hit the breaks in the first three months of this year as the market starts to mature, the China Association of Automobile Manufacturers said CAAM said total auto sales rose 28.98 pct year-on-year in the first three months of the year to 1.2777 mln units, compared with a rise of 51.71 pct in 2003, while production rose 25.63 pct year-on-year to 1.2996 mln Total passenger car sales for the first quarter rose 44.47 pct year-on-year to 567,000, a significant slowdown from last year's 100 pct growth Car production in the first three months, at 576,900, also slowed to 41.86 pct CAAM forecast auto and passenger car production in the second quarter to exceed 1.55 mln and 700,000 units, respectively, without elaborating on reasons for the rise Shanghai Automotive Industry Corp (SAIC), First Automotive Works (FAW) Group Corp and Changan Automobile Group dominated the market in the first quarter, accounting for 46 pct of total auto sales, while FAW, SAIC and Dongfeng Motor Corp accounted for almost 46 pct of total sales in March. FAW has joint ventures with Toyota Motor Corp and Volkswagen AG, while SAIC has joint ventures with both VW and General Motors Corp. Dongfeng has a huge truck and car joint venture with Nissan Motor Co and a smaller venture with Peugeot SA Increasing competition in the domestic auto sector and higher raw material prices eroded car makers bottom lines in the first quarter, with combined profit falling to 10.3 bln yuan, from 16.9 bln yuan last year The average auto sales price in the first quarter fell 8.09 pct, while the average price of imported cars fell 4.31 pct as manufacturers slashed prices in an attempt to stem slowing sales growth [Even with steel and other commodities rising, they are slashing car prices - interesting - mish] CAAM expects domestic prices to fall a further 10 pct this year, while prices for imported vehicles are forecast to fall by just under 10 pct. Car sales in March rose 59.07 pct year-on-year to 226,200, up 22.18 pct from February, while output rose 53.83 year-on-year to 246,700, up 31.2 pct from the previous month. Total vehicle output jumped 35.93 pct year-on-year to 567,400, up 31.17 pct month-on-month, while vehicle sales rose 36.83 pct year-on-year to 542,600, up 25.62 pct from February Car sales in China have soared over the past two years on the back of a combination of rising urban incomes, falling prices, a flood of new cheaper models and the increasing availability of bank loans to fund purchases However, analysts and manufacturers themselves have been forecasting a big drop in the pace of growth this year, partly because of the large comparative base for 2003. They say previous levels of growth are unsustainable, although they still see growth in the 10-20 pct range as realistic fxstreet.com

To: gregor_us who wrote (4462)	4/16/2004 8:46:19 AM
From: mishedlo	Respond to of 116555

Greenspan talks - says nothing Laws no substitute for reputation, Greenspan says Friday, April 16, 2004 1:31:19 PM WASHINGTON (AFX) - Reputation for honesty is once again becoming a necessary corporate virtue for companies that want to thrive, Federal Reserve Chairman Alan Greenspan said Friday In remarks to a conference on financial markets hosted by the Federal Reserve Bank of Atlanta, Greenspan said, "rules cannot substitute for character." Greenspan made no comments on the current U.S. economy or on monetary policy. Greenspan is scheduled to testify on the economic outlook before the Joint Economic Committee next Wednesday ahead of the May 4 meeting of the Federal Open Market Committee "Recent transgressions in financial markets have underscored the fact that one can hardly overstate the importance of reputation in a market economy," Greenspan said in his brief introductory remarks. A copy of his speech was made available in Washington "The plethora of laws of the past century have not eliminated the less-savory side of human behavior," Greenspan said. The most effective punishment, he said, is often the merciless hand of the market that shuns all contact with the dishonest among us Laws and rules have their place, he said. "Guilty parties should be expeditiously punished. Some practices and rules have outlived their usefulness and require updating," he said "But in doing so we need to be careful not to undermine the paradigm that has so effectively governed voluntary trade," Greenspan said. "Rewriting rules that have served us well is fraught with the possibility for collateral damage." This story was supplied by CBSMarketWatch. For further information see www.cbsmarketwatch.com

To: gregor_us who wrote (4462)	4/16/2004 8:58:07 AM
From: mishedlo	Respond to of 116555

Euro zone Q4 GDP up 0.3 pct vs Q3, unchanged vs provisional, consensus Friday, April 16, 2004 10:15:59 AM BRUSSELS (AFX) - Euro zone GDP in the fourth quarter rose a final 0.3 pct from the third quarter, and was up 0.6 pct year-on-year, EU statistics office Eurostat said The figures were in line with Eurostat's provisional estimate and with the consensus forecast of economists polled by AFX News

To: gregor_us who wrote (4462)	4/16/2004 9:10:17 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Housing starts top 2 million in March Friday, April 16, 2004 1:46:22 PM WASHINGTON (AFX) -- Starts of new U.S. houses rose about 6.4 percent March to a seasonally adjusted, annualized pace of 2.01 million units, the Commerce Department said Friday. The stronger-than expected rise is the first increase since December and largest monthly gain since May 2003 Starts hit a 20-year high of 2.06 million in December as builders reacted to low interest rates and record new home sales. Housing starts have risen 15.3 percent since March of last year. Economists were looking for starts to accelerate slightly in March, to about 1.91 million units, according to a survey conducted by CBS MarketWatch ====================================================================== Treasury rally in the face of this news is bullish IMO. Treasury and eurodollar selloff quite overdone Mish

To: gregor_us who wrote (4462)	4/16/2004 9:13:18 AM
From: mishedlo	Respond to of 116555

Euro zone March HICP up 1.7 pct yr-on-yr vs 1.6 provisional, consensus Friday, April 16, 2004 10:15:48 AM BRUSSELS (AFX) - The euro zone's harmonised index of consumer prices rose a final 1.7 pct year-on-year in March, revised up from a provisional estimate of a rise of 1.6 pct, EU statistics office Eurostat said Economists polled by AFX News had forecast a rise of 1.6 pct The HICP rose 1.6 pct year-on-year in February Month-on-month, the HICP rose 0.7 pct in March Eurostat said prices excluding energy, food, alcohol and tobacco -- its favoured measure of core inflation -- were up 1.8 pct year-on-year, unchanged from the February rate of increase Prices excluding energy and unprocessed food rose 2.1 pct year-on-year, compared with a rise of 2.0 pct in February. This measure of core inflation is closely watched by the European Central Bank fxstreet.com

To: gregor_us who wrote (4462)	4/16/2004 9:17:19 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

U.S. March industrial production unexpectedly off 0.2% WASHINGTON (CBS.MW) - U.S. industrial production unexpectedly fell 0.2 percent in March after strong gains the previous two months, the Federal Reserve reported Friday. Capacity utilization fell to 75.5 percent from 75.7 percent, the first decline since June. Economists were expecting production to rise 0.3 percent and capacity utilization to increase to 76.8 percent. Production is up 3.4 percent in the past 12 months after rising a revised 0.8 percent in February and 0.7 percent in January. In the first quarter, production rose at an annual rate of 6.6 percent, the fastest growth since the second quarter of 2000. Manufacturing output was unchanged in March. Output of utilities fell 2.3 percent.