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

To: TH who wrote (5560)	5/4/2004 4:44:29 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Economists say rate hikes will be slow, steady Tuesday, May 4, 2004 9:05:54 PM afxpress.com WASHINGTON (AFX) -- The Federal Reserve is ready to raise rates in a slow and steady manner, but no one knows when it will take the first move, economists said Tuesday The Federal Open Market Committee kept its overnight lending rate steady at 1 percent following Tuesday's meeting, but prepared the way for higher rates later. "We have been told: RATES ARE GOING UP," said Steve Stanley, chief economist for RBS Greenwich Capital The key phrase in the statement was this: "At this juncture, with inflation low and resource use slack, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured." "This is exactly what I was expecting," said Irwin Kellner, chief economist for CBS MarketWatch and the Weller professor of economics at Hofstra University. "When the Fed starts to raise interest rates, it won't go up dramatically." "They have no problem admitting, for the first time in the official communiquÃ©, that rates are going up," Stanley said. "The stage is set, the markets are prepared, and the only thing standing in the way of commencing the long-awaited tightening cycle is more strong data." "What the Fed is signalling is that they will increase rates gradually -- not that they won't raise them this year," said Sherry Cooper, chief economist for BMO Nesbitt Burns Few economists expect a repeat of 1994, when the FOMC increased interest rates by three full percentage points in the space of a year, leading to one of the great bear markets in bonds Fears about another debacle are overblown, said Bob Walters, chief economist for Quicken Loans. "The market has been adjusting to signs of a rate increase for several weeks now, so it's unlikely the markets, which determine long term rates, such as those for mortgages, will overreact," he said But the timing of the coming rate hikes is still a matter of great speculation "There is no qualifier to this statement -- no 'when appropriate' -- suggesting the Fed is ready to raise rates as soon as June," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. Not so, said Drew Matus, an economist for Lehman Brothers. "This is a dovish statement that takes June off the table -- if it was ever there to begin with," Matus said. "We continue to expect that the first Fed move will come in September and will be a measured 25 basis-point (quarter percentage point) increase." Kellner thinks the most likely timing is June, but he thinks the Fed will further ease markets' worries by raising rates by just a tenth of a percentage point to 1.10 percent. The timing of the rate hikes is likely to depend on the incoming data on employment and inflation. By August, the Fed will have seen four more employment reports and three more consumer price reports "Odds still favor a rate hike on Aug. 10," Cooper said. Four more jobs reports will be "enough to verify that the surge in employment growth in the first quarter was not a fluke." With the markets watching the Fed and the Fed watching the markets, Robert Brusca, chief economist for Fact and Opinion Economics, wonders: "Who will blink first? Will a bond sell-off spark a Fed rate hike? Or versa vice?" The danger is that the Fed will be blindsided by weak payroll growth, said Ashraf Laidi, chief currency analyst for MG Financial. By focusing on "inconsistent" monthly employment reports, he said, the Fed could fall behind on inflation fxstreet.com

To: TH who wrote (5560)	5/4/2004 4:53:58 PM
From: mishedlo	Read Replies (4) \| Respond to of 116555

Heinz on oil, GDP, and the economy Date: Tue May 04 2004 15:22 trotsky (crude oil) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved as i have previously mentioned, once the $40 barrier falls convincingly, an over 20 year old resistance level will be broken. whenever that happens in a commodity market, it's a highly significant event. one only has to look at the resistance levels that were broken in the early 70's, many of which similarly had held for 20 to 30 years. prices subsequently rose by multiples. i'm not saying it WILL definitely happen right here and now - after all, 40 remains formidable resistance, so it is more likely that it will continue to act as resistance for the time being. this is just a heads-up regarding the 'what if' scenario. IF and when the level breaks, all hell is likely to break loose in crude oil prices. Date: Tue May 04 2004 15:15 trotsky (frustrated, 12:38) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "@capacity utilization ...is this factor becoming less important as we turn toward a service economy and away from a manufacturing economy? and I see that the average between 1972-2002 is 81.3...what is the critical number..." you are actually in error if you believe that manufacturing has become 'less important'. it has merely become more EFFICIENT, as less and less workers are needed to produce more and more goods. but other than that, manufacturing remains the by far most important sector of the US economy. don't let 'GDP' mislead you into thinking otherwise - a huge amount of actual PRODUCTIVE outlays in the economy are simply NOT COUNTED to arrive at GDP. if you consult the input/output tables, underneath the 'official' $10 trillion 'consumption economy', that includes the waste of resources by the 21+ MILLION apparatchiks employed by the state ( and counts it as 'growth' ) there have been transfers among businesses of over $18 trillion last year - much of it indeed related to manufacturing. manufacturing is in REALITY far more important to the economy than is generally believed. thus when capacities lie idle as they now do, we must assume that the malinvestments of the 1990's bubble have not yet been liquidated. BEDFORE that happens, new capital investment will remain extremely restrained, and the economy will remain unable to genuinely recover. the entire production structure must be allowed to realign to reflect the absence of the false boom of the 90's. that this has not yet happened is a sign that after decades of monetary abuse by the Fed, the pool of real funding in the US has finally begun to shrink, which in turn means they can't even maintain the illusion that their tinkering produces 'growth' anymore. admittedly capacity utilization per se does not tell you a whole lot - no aggregate economic data set does. but in the historical context, the current percentage is NOT consistent with a recovery, but rather a recession. note that in past post WW2 recession/recovery cycles ( when the pool of real funding was still expanding by the looks of things ) , utilization tended to fall to somewhat lower lows ( 71-73% approx. ) but quickly recovered to above 80 percentages in the up cycle phases. this has not happened this time around, an i contend that the unused capacity largely consists of lingering malinvested capital. why does it linger? because the monetary bureaucrats have averted the cleansing 'bust', i.e. they have thrown these malinvestments a line of artificial life support, just as has happened in post bubble Japan. Japan is btw. the best example that the causation chain between monetary 'policy' and economic 'growth' is an illusion, that survives only as long as the pool of real funding manages to grow in spite of the interventionist depredations. Date: Tue May 04 2004 14:51 trotsky (Cowpoke, 12:36) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved true economic wealth creation has nothing to do with a growing supply of money. in a free market, money is a fungible commodity with a pre-existing demand, exhibiting various features that make it useful as money ( the market has decided on gold to fulfill this function about 2000 years or longer ago already ) , and it serves as a medium of exchange. now, since fiat money is created out of thin air, it follows that the creation of ADDITIONAL tokens of fiat money can not, per se, produce economic 'growth', or to be more precise, wealth. if it could, the third world would be a utopia by now. in fact, every country with a printing press ( or a computer these days ) would be a utopia. however, wealth creation is NOT equal to the creation of medium-of-exchange-tokens. it is the production of goods and services, the increasing division of labor ( and lengthening of the production structure ) , achieved by capital accumulation ( a.k.a. 'savings' ) that create wealth. it is immaterial how big the supply of money is - even a completely constant supply of money would serve us quite well. it's what the money can buy that counts.