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

To: Perspective who wrote (9587)	7/20/2004 11:14:57 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Greenspan expected to help bonds, hinder dollar - Tuesday, July 20, 2004 1:02:26 PM CHICAGO (AFX) -- Alan Greenspan will have a receptive audience in the bond market and a less receptive crowd on the currency side if the Federal Reserve chairman sticks to his anticipated script Tuesday and Wednesday on Capitol Hill "Look for the chairman to be bond-market friendly and dollar unfriendly in his appearances this week," said Robert Brusca, an analyst with Fact and Opinion Economics Greenspan is scheduled to testify to the Senate Banking Committee on Tuesday afternoon and will appear before the House Financial Services panel on Wednesday for a second round of questions. While what is viewed as friendly to one is generally seen in opposite terms for the other, the foreign exchange and Treasury markets all the same "are linked at the hip," said Bob Gay, chief interest-rate strategist at Commerzbank Securities Higher interest rates chip away at the value of fixed securities, while boosting the value of the U.S. currency. Since inflation is not currently seen as an epidemic problem, the markets see the climate as one of having ample time as rates edge higher at the controlled pace touted by Greenspan and his colleagues. "It's a very benign environment for bonds," said Gay. Conversely, the dollar is "looking at another leg down if we're to have a soft landing," said Gay, a former Federal Reserve economist "We think this recovery has been uneven enough, and the news from overseas is spotty enough, that the Fed will not want to urge the markets to turn rates higher," said Brusca While Greenspan is viewed as likely to acknowledge some upswing in inflationary indicators, "a benign tone from Greenspan's remarks should mitigate bearish fallout on bonds, but won't be beneficial for the dollar," said Kim Rupert, an economist at Action Economics "He may mention that higher oil prices are dragging the economy down and why the Fed will remain diligent and raise rates again next month when the Fed meets to decide their policy," said Kevin Giddis, managing director, fixed income, Morgan Keegan & Co "He may offer a glimpse of what the Fed thinks about the economy and inflation, but don't expect him to drop any bombshells of information that indicate what the Fed's next move will be," said Giddis A "reiteration of a 'measured' policy stance could help extend gains, particularly in the shorter-dated instruments," Rupert said of the U.S. debt market And, Friday's drop in Treasury yields may have stemmed from "dovish expectations on Greenspan, [but] the bullish curve flattener is more reflective of a benign inflation outlook," said Rupert. The financial markets are generally assuming that Greenspan will stick to his measured pace stance in raising interest rates, barring some compelling economic reason to do otherwise "There is only downside for the Fed if it takes a hard line on getting the funds rate back to neutral in an expeditious fashion without a clear and present danger from inflation or without a firm and growing job-creating economy," Brusca said The Fed hiked short-term lending rates 25 basis points at the end of June, with the first such increase in four years bringing the target loan rate to 1.25 percent. The lowest cost of funds, apart from Japan, is seen as steadily rising with further 25 basis point increases, the next coming in August "If the data hadn't done his work for him over the last month, [Greenspan] would be talking a very mellow line. But fortunately for our story, the market has done all the heavy lifting for him already," Gay said of data that generally has shown an expanding economy with relatively tame inflation The market is "now accepting his story uncritically... so in a sense the markets are clued in as to how to read the tea leaves," Gay said fxstreet.com

To: Perspective who wrote (9587)	7/20/2004 11:41:20 AM
From: mishedlo	Respond to of 116555

CTX -3.55% HOV -4.82% KBH -3.89% They know that the housing market is cooling off, so they are planning on building less. Thus fewer permits and fewer starts. It was the lowest number of starts in a year. It's the sharpest decline in permits in 10 years. These numbers effect the Leading Indicators, which will be released on Thursday, after Greenspan has snuck out the back door from his congressional testimony today and tomorrow. Before this report, the indicators were calling for 0% growth: biz.yahoo.com

To: Perspective who wrote (9587)	7/20/2004 11:42:43 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Paul also lies when he says that inflation hits the poor the hardest. On the contrary, inflation is the working debtor's friend, chewing away at real debt loads while increasing the pay for labor in the present. It's not really rich vs poor is it? Isn't it debtors vs creditors and the ability of the debtors to pay? Mish

To: Perspective who wrote (9587)	7/20/2004 12:32:13 PM
From: mishedlo	Respond to of 116555

U.S. housing starts for June retreat to one-year low - Tuesday, July 20, 2004 4:11:50 PM WASHINGTON (AFX) -- Groundbreaking on new homes in the United States slowed in June, falling 8.5 percent from May to a seasonally adjusted annual rate of 1.802 million units, the Commerce Department estimated Tuesday It was the lowest number of starts since May 2003. Economists had been expecting starts to remain robust at 1.97 million, according to a survey conducted by CBS MarketWatch. Starts of new single-family homes declined 9.5 percent in June to 1.489 million, also the lowest since May 2003 Building permits, a leading indicator of the housing market, tumbled 8.2 percent to 1.924 million units -- the sharpest decline in permits in 10 years. Permits for single-family houses slid 6.2 percent to 1.51 million Minor revisions put May's figures at 1.97 million for starts and 2.097 million for permits Housing has been a bulwark of the U.S. economy throughout the recession and slow recovery, with low mortgage rates bolstering housing to record levels. But mortgage rates had drifted higher as the Federal Reserve signaled that it would raise rates On Monday, the National Association of Home Builders reported its July market index slipped to 67 from 68 in June, indicating the market for new homes remains hot. Sales prospects remained good, while traffic of potential buyers dropped, homebuilders said "We're coming off some unsustainable numbers," said David Seiders, chief economist for the homebuilders. He said market conditions have actually improved since June, when builders, buyers and lenders were in turmoil about how fast the Fed would raise rates Looking ahead, Seiders sees favorable demographics and a strengthening economy propping up construction activity, even as mortgage rates move higher. He predicts an average 30-year mortgage rate of 6.5 percent at the end of the year, up from 6 percent now. The weak housing figures are only the latest economic data to indicate a slump in June. Payroll growth slowed, retail sales fell and industrial output declined The figures come just hours before Federal Reserve Chairman Alan Greenspan testifies on Capitol Hill about the nation's economic outlook. Analysts expect Greenspan to gloss over the weak June numbers by arguing that fundamentals for a strong recovery remain sound. It's widely believed the Federal Open Market Committee will raise its overnight lending rate to 1.50 percent in August after the central bank's policymakers initiated the first tightening cycle in four years in June "Just as we need to get back to more normal interest rates, the low-rate hyped sectors have to move back to more sustainable levels," said Joel Naroff, president of Naroff Economic Advisers. "That is the process we are going through and it will not dissuade the Fed from its rounds of rate hikes." Housing starts fell in all four regions of the nation in June, an indication that unusual weather was probably not a factor in the June decline. Permits fell in three of the four regions, with the Northeast standing out with a 1 percent gain The government cautions that the housing data are subject to large sampling and other statistical errors. It can take five months for a trend in housing starts to emerge from the data Over the past five months, U.S. housing starts have averaged 1.926 million, down from last month's 1.952 million fxstreet.com