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

To: russwinter who wrote (13974)	10/25/2004 9:54:49 AM
From: mishedlo	Respond to of 116555

Global: Cracked Facade Stephen Roach (New York) The delicate equilibrium in world financial markets may be starting to unravel. The dollar has broken out of its recent range, credit spreads are widening, equities are sagging, and riskless sovereign bonds are well bid. The message is worrisome: For an unbalanced and increasingly vulnerable world economy, the unrelenting rise of oil prices spells mounting risks of global recession in 2005. Financial markets are only just beginning to comprehend this possibility. There are lots of moving parts to this story. But the one that intrigues me the most right now is the dollar — down 3% against the euro and nearly 4% against the yen in the past two-and-a-half weeks. In my view, this move in the dollar is a “drop in the bucket” for a US economy with a 5.7% current account deficit that could easily climb in the 6.5% to 7.0% zone in the next year. The problem, of course, is that my currency view has been a lonely one over the past nine months. The Teflon-like greenback has begun to reverse some the depreciation of the previous couple of years — unwinding about three percentage points of the 13% real trade-weighted decline that had occurred since early 2002. But in recent weeks, I have felt less lonely, as the official community — both in the US and around the world — has come out in the open in expressing concerns about America’s gaping twin deficits and what they mean for the dollar. Fedspeak has been especially focused on this issue, with at least five Federal Reserve governors and regional bank presidents weighing in on this key risk. I don’t believe in conspiracy theories, but I don’t think this collective expression of concern is an accident. A weaker dollar has long been the centerpiece of my global rebalancing framework. Macro deals best with global imbalances by changing the world’s relative price structure. With the dollar the world’s most important relative price, depreciation is a perfectly natural way for the global economy to restore some semblance of equilibrium. But don’t expect the world to turn on a dime in response to currency changes. In fact, it has become increasingly clear over the past decade that trade flows and inflation are a good deal less sensitive to currency fluctuations than was the case earlier. In my view, a weaker dollar would, instead, be more of a signaling mechanism — sparking a back-up in US real interest rates as foreign creditors demand compensation for taking currency risk. For an overly-indebted US economy, higher real interest rates would impair credit-sensitive domestic demand, boost national saving, and reduce America’s claim on external saving. These are the characteristics of a classic current-account adjustment. Yet the world has resisted this adjustment. That’s been especially the case in Asia. Lacking in support from domestic demand, the Asian currency bloc has basically refused to participate in the dollar’s depreciation, putting a disproportionate share of the burden on the euro. Since the dollar’s peak in early 2002, the trade-weighted euro has risen about 20% (in real terms), whereas the trade-weighted yen — a good proxy for Asian currencies — has been basically unchanged. I have referred to the Asian currency zone increasingly as a renminbi bloc, underscoring the key role that China’s currency peg plays in inhibiting other Asian economies from suffering any competitive disadvantage with the region’s super-competitive trading powerhouse. Recent warnings of renewed currency intervention by Japanese Finance Minister Tanigaki underscore Asia’s renewed conviction to resist currency-induced global rebalancing. The authorities are now swimming upstream. Monthly data from the US Treasury reveal a sharp deceleration of foreign demand for dollar-denominated assets — $61 billion average net purchases in July and August versus a $76 billion average in the prior 10 months. This deceleration is worrisome for two reasons — the first being it has occurred against a backdrop of a dramatic widening of America’s current account deficit, which went from 4.5% in late 2003 to 5.7% in mid-2004. Second, private investors have already turned skittish on the dollar, forcing non-US policymakers to up the ante in filling the void. Over the 12 months ending August 2004, fully 33% of net foreign purchases of long-term US securities have come from the official sector — more than double the 15% share of the prior 12 months and over four times the portion over the 2000-02 period. With private inflows into dollars now going the other way at just the time when America’s external financing needs are exploding, extraordinary pressure is being put on Asian authorities to resist the inevitable. In the end, this is a losing game. Intervention cannot neutralize the deadweight of America’s massive current-account deficit. That’s the message to take from the recent fragility of the strong dollar. For what it’s worth, I suspect that the dollar’s slide will accelerate sharply in the aftermath of the US presidential election — probably more so in the event of a Kerry victory than would be the case in a Bush win. Senator Kerry’s focus on trade and jobs puts him more in the camp of embracing market-based resolutions to global imbalances. In either case, however, the dollar’s coming depreciation will pose a great challenge for an unbalanced global economy. The flip side of a weaker dollar spells currency appreciation elsewhere — forcing the export-led economies of Asia and Europe to embrace the reforms long needed to unshackle domestic demand. If Asia continues to resist, it faces a growing protectionist threat from both Europe and the United States. I remain convinced that the world’s unprecedented external pressures will be vented in one way or another — through markets or politics, or some combination of both. Meanwhile, the confluence of a number of other powerful forces is putting added pressure on an unbalanced global economy. Three such developments are at the top of my list. First, oil prices have now averaged in excess of $50 (WTI-basis) for six weeks — satisfying about half the three-month duration criteria that I believe would qualify as a full-blown oil shock. So far, the real side of the global economy has held up reasonably well in the face of this price spike, buying into the long-standing consensus forecast of a sharp and imminent reversal of oil prices. The longer that forecast turns out to wrong, the greater the threat to a complacent world. For this reason, alone, I continue to place a 40% probability on a global recession in 2005. Second, the China slowdown remains the big gorilla in this unbalanced world. The latest batch of Chinese data point to further, albeit uneven, deceleration in this overheated economy. The September figures on industrial output (+16.2%) and fixed investment (+27.7%) were all a bit stronger than those in August but significantly below the peak rates of comparison earlier this year — 19.4% for industrial production and 43% for investment. The big news, in my view, was a stunning deceleration in Chinese import growth — 22% in September versus a 36% increase in August and 50% peak growth rates earlier this year. This, together with a further slowdown in bank lending, points to the early signs of a long-awaited cooling off of Chinese domestic demand. Data elsewhere from China-centric Asia now corroborate this development — underscored by renewed cyclical weakening in Korea and recent slippage in Japanese export growth. China has a long way to go on the inevitable journey to a soft landing. That will require more policy restraint and entail increased transmission of the China slowdown to its trading partners and commodity markets, in my view. Third, is the potential unwinding of Pax Americana — a development of staggering implications for a long US-centric global economy. It’s not just the dollar-current-account dynamic described above. It also has to do with the possibility of a diminished US productivity advantage (see my 19 October essay, Productivity Convergence?). And it reflects the unrelenting backlash of re-regulation in the aftermath of the Roaring Nineties — underscored by Eliot Spitzer’s latest forays into the insurance and music industries, to say nothing of Enron-type accounting scandals, Wall Street’s travails, and the Sarbanes-Oxley legislation of 2002. All the stars were in alignment for the US economy in the latter half of the 1990s. But now, lacking in saving, encumbered with massive twin deficits, deeply in debt, and facing a very different productivity-regulatory nexus, America needs to be viewed through another lens. And so does the rest of the global economy as it weans itself from a US-centric growth dynamic. I’ve been on this global rebalancing kick for about three years. At times, it has worked well as a guide to developments in the global economy and world financial markets. On other occasions, that hasn’t been the case. But I remain convinced that it’s only a matter of time when powerful market forces transform profound imbalances into a more sustainable state of balance. Who knows what lies ahead over the near term in the financial markets? But the message of the past few weeks points to cracks in the façade of denial. I suspect there’s more to come. morganstanley.com

To: russwinter who wrote (13974)	10/25/2004 10:00:44 AM
From: mishedlo	Respond to of 116555

Is the Fed Trying to Talk Down the USD? Sophia Drossos & Karin Kimbrough (New York) Market focus on the US current account (C/A) deficit has intensified, especially following comments from Fed officials and evidence of a further yawning in the US C/A deficit now projected to peak at 6.5% of GDP next year. But rather than signal a weaker USD, we think the Fed’s discussion of this issue may be aimed at staking out a public position to prod the next administration to make fiscal discipline a priority. Our sense is that recent Fed commentary is trying to convey that the larger size of the expected C/A deficit may pose more vulnerability, but a disorderly adjustment remains a low-probability event. Mistake to interpret concern about the C/A as effort to talk down the USD To be sure, the Fed has given the market plenty to debate on this issue. Since the beginning of September, five speakers have touched on this issue in some way. We agree with the view expressed by the FOMC’s McTeer, who assured observers that this was not a conspiracy to signal the market. Most comments came not in prepared remarks, but in response to direct questions. In the past, the Fed has used prepared remarks to signal the markets in a carefully crafted message. Moreover, we suspect the Fed shares our view that the exchange rate is not as effective a policy lever in the US as it is in other countries. Speaking out openly about the USD not only violates the US Treasury’s territory on USD policy, it could also undermine investor confidence in US assets. There is no such thing as managing a little depreciation in the USD – signaling a preference for a weaker USD could strongly destabilize asset markets, in our view. Weaker USD Not Much of a Help In our view, USD weakness does little to help shrink the C/A deficit. This widening reflects longer-term structural issues rather than mere currency misalignments. In fact, coinciding with the USD’s 25% decline on the Fed’s major currencies index over the past two-and-a-half years, the current account gap has increased 50%. To have any appreciable impact on narrowing the US trade deficit, Stephen Jen estimates that the EUR/USD and USD/JPY would have to reach 1.80 and 0.60, respectively. At those levels, the inflationary impact would seriously challenge the Fed’s price stability mandate, in our view. We don’t think the Fed would risk letting a hard-to-control inflationary genie out of the bottle. Downward USD? Asia Would Follow In our view, it would accomplish next to nothing for the Fed to attempt to talk down the USD at this point, since so many of its deficit partners would depreciate their currencies in lock-step. Out of the countries with which the US has its top 10 bilateral trade deficits, seven have currencies that moved 2% or less relative to the USD since the beginning of the year. These seven countries operate a de facto peg against the USD and account for 40% of the US total current account deficit. In fact, of the countries listed here, only China has an explicit intention to introduce a more flexible currency. Another reason for our skepticism is that most of the US’ major trading partners rely on an export-led growth model. Six of the US’ top ten trading partners are generating more than half of their GDP growth from exports. They need to maintain cheaper currencies and aggregate current account surpluses in order to fuel growth. Interestingly, China isn’t one of them. Despite being the scapegoat of FX markets, China does not rely as much on an export-led growth model. This underscores other evidence implying that the persistent energy directed at China’s currency policy may be overdone. Identifying the Problem – No Quick Fix An economic identity below states that investment equals the sum of private savings, public savings and the current account deficit. The left-hand side of the equation (representing the source of US capital inflows) is dominated by Asian economies, which have a savings glut. In order for these capital inflows to the US to stop, Asia would need to stop saving and start spending. We view this event as unlikely without a stronger domestic demand cycle. Savings patterns are slow-moving and unlikely to change in the near term, as our colleagues Andy Xie and Stephen Jen have pointed out in their recent articles. That is not to say that US savings deficiency does not matter. The right side of this equation (where the terms are all negative or in deficit) suggests that either households have to save more or the government does. Higher US government savings would repair a budget deficit estimated at 2.8% of GDP in 2005, and this may be the most efficient route to improving the US C/A gap. Recent comments, particularly from Chairman Greenspan, have consistently referenced the need for improved budget discipline. In our view, the Fed likely has emphasized the need for fiscal restraint because the budget deficit is a contributing factor determining the current account deficit. The Fed’s discussion of this issue may be aimed at staking out a public position to prod the next administration to make fiscal discipline a priority Bottom Line We believe that the Fed’s recent public comments do reflect increased concern about the US C/A, but we do not construe them as an attempt to talk down the USD. While the market may be predisposed to the view that a weaker USD would be a panacea for the US C/A deficit, we see the problem as requiring a more complex answer that will take time. We suspect that this is the view of US monetary authorities as well. morganstanley.com

To: russwinter who wrote (13974)	10/25/2004 10:09:30 AM
From: mishedlo	Respond to of 116555

United States: Review and Preview Ted Wieseman/David Greenlaw (New York) The Treasury curve saw a decent flattening move over the past week; buying driven by concern over continued upside in energy prices was pushed out the curve by the richness of the front end. With investors continuing to see a high probability of a 25 bp hike in the fed funds target to 2.00% on November 10, the 2-year yield (at just above 2 1/2% almost all week) was seen as fully valued without a fundamental rethinking of the Fed policy outlook that contemplated the possibility of easing. We are certainly not at that point, so gains in response to energy prices made their way to the longer end of the curve, though upside was muted as investors waited for more concrete information on how the economy is faring in response to the recent gains in energy prices. The economic data calendar was quiet, and almost all of the week’s gains were made on Wednesday after the Energy Department’s report of lower than expected petroleum product inventories led to sharp gains in oil, gasoline, heating oil and natural gas prices. Fed officials expressed concerns about the likely impact of this latest shock on growth and focused on underlying inflation and inflation expectations as key determinants of their ability to respond by slowing the pace of rate normalization. There is a busy economic calendar in the coming week, but most of the key releases are too backward looking to address current market concerns. The GDP report for Q3 and several remaining monthly reports for September will likely continue to confirm that the economy recovered solidly over the summer from the energy-driven soft patch hit in the spring. But with investors now fearing a second soft patch in the months ahead, the early round of data releases for October in early November are the next economic focus, with the employment report, as always, the key report. The Treasury curve flattened to back near the year’s lows hit in September over the past week, with 2’s-30’s falling 10 bp and 2’s-10’s 8 bp on a 1 bp increase in the 2-year yield to 2.525%, a 7 bp drop in the 10-year yield to 3.98%, and a 9 bp decline in the long bond yield to 4.76%. The 3-year yield dipped 1 bp to 2.75% and the 5-year yield fell 5 bp to 3.26%. Aside from a brief bout of more significant selling after Tuesday’s CPI report that was soon reversed, the 2-year yield mostly traded in a narrow range just over 2 1/2%, slightly above a 50 bp spread over the expected 2% fed funds target after the November 10 FOMC meeting – a spread consistent with a Fed-on-hold scenario. While the market is increasingly priced for the Fed being done for a good while after November – our curve-implied financing model showed 31 bp of tightening priced into the Treasury curve at Friday’s close over a three- to six-month horizon, or only 6 bp assuming a November hike – there is certainly no impetus at this point to start pricing in any easing, so market gains got pushed out the curve. Gains there were relatively muted, however. Investors were focused on 3.98% as an important technical level for the 10-year. It moved there late Wednesday following the surge in energy prices that followed the Department of Energy’s weekly inventory report, made a run Thursday at the 3.96% intraday low hit in late September, but settled back to close the week marginally above 3.98%. Movement in the TIPS curve sharply contrasted with the nominal curve. A larger than expected 5-year TIPS announcement certainly did not seem to negatively impact the market, as the real curve steepened sharply, with investors rushing into the short end on upside in energy prices and unwinds of underwater flatteners put on earlier in the month. The yield on the January 2007 TIPS plummeted 15 bp to 0.04%, sending the breakeven inflation spread up 14 bp to 2.48%, marginally below the multi-year highs hit in late May at the peak of the year’s first oil price shock. This led to a sharp steepening in the real curve, but longer maturity issues still performed relatively strongly versus nominals in a rallying market. The real 10-year yield fell 7 bp on the week to 1.61%, leaving the breakeven inflation spread flat at 2.38%. Market focus the past week was mostly on energy prices, with stocks also a driver and the plunging dollar becoming a positive as hopes were raised for renewed Bank of Japan intervention. December oil gained 2% to $55.17, November gasoline gained 2% to $1.4376, and November natural gas surged 21% to $8.105. Most of the gains again followed lower than expected results from the weekly petroleum product inventory numbers from the Department of Energy. Little progress continues to be made in restoring production in the Gulf of Mexico, with the Minerals Management Service reporting that as of Friday 25% of Gulf oil production and 12% of natural gas production remained shut in by Hurricane Ivan damage. Meanwhile, the Energy Department’s survey showed national average regular retail gasoline prices up 2% in the latest week and 10% since prices bottomed in mid-September. Surging gasoline prices and the prospect of significant upside in natural gas heating bills this winter clearly are raising the risks of another consumer driven “soft patch” in the economy in the months ahead. Fed officials certainly seem to be getting nervous about this. In speeches over the past week, Governor Bernanke and San Francisco President Yellen expressed concern about the impact of oil prices on growth and said that if energy prices lead to a second “soft patch” in the economy, they would focus on movements in underlying inflation and inflation expectations in judging their freedom to respond. If we do see a consumer-led downshift in growth in the near term after the Q3 rebound from the early-year soft patch, as we expect, recent inflation and inflation-expectations data could provide the Fed a basis for pausing on rates after November. Even with the larger than expected gain in core CPI in September (+0.3%) underlying inflation has moderated significantly in recent months to +1.7% annualized in the four months through September, from +2.9% in the first five months of the year. Meanwhile, the University of Michigan survey's measure of median 5-year-ahead consumer inflation expectations was unchanged at +2.8% in early October and has held within a narrow range of +2.7% to +2.9% for the past two years. Based on our expectations for moderating growth in Q4 and Q1 and recent relatively benign core inflation numbers, we expect the Fed to pause after hiking the funds rate to 2% in November before resuming gradual tightening at some point in the first quarter. In other economic news, state payroll employment data released by BLS Friday suggested a negative hurricane impact in September of roughly 50,000, somewhat smaller than we had thought based on some of the underlying details of the initial report. Seven states identified by BLS as having been significantly impacted by hurricanes (Florida, Alabama, Mississippi, Louisiana, Georgia, North Carolina and Pennsylvania) reported a total payroll decline in September of 18,000. In the year through July, before the hurricanes hit, these states recorded an aggregate average monthly payroll gains of 26,000, a share of the nationwide average monthly payroll gain of 127,000 in line with their 20% share of the national labor force. If these states had made the same 20% contribution in September, national payrolls would have risen about 145,000 instead of 96,000. Similarly, if payrolls in these states had risen 26,000 instead of falling 18,000, national payrolls would have risen about 140,000. So the hurricane hit appears to have been roughly 50,000. We expect at least a partial reversal of this temporary disruption to help boost October payrolls to a 200,000 gain. There is a busy economic calendar in the coming week. The third quarter GDP report on Friday is likely to confirm a solid rebound from the Q2 “soft patch.” Most of the key releases are similarly backward looking and thus of limited importance as investor focus has shifted to trying to judge the extent of the impact of the more recent surge in energy prices. In this regard, the Conference Board’s consumer confidence report on Tuesday and revised University of Michigan survey on Friday will likely be most informative. On the supply calendar, Treasury will auction a $12 billion 5-year TIPS on Tuesday and will announce a 2-year on Monday for auction Wednesday (we expect an unchanged $24 billion size). Most Fed officials appear to have decided to go into their traditional pre-FOMC quiet period a week early, possibly in a desire to steer clear of the election. The only Fed speaker scheduled in the coming week is Vice Chairman Ferguson, who will be appearing Tuesday and Friday. In addition to the GDP and confidence figures, noteworthy economic data releases include existing home sales Monday, durable goods and new home sales Wednesday, and ECI and Chicago PMI Friday: * We forecast existing home sales of 6.50 million in September. While applications for new mortgages have held up reasonably well over the past couple of months, we look for a slight 0.6% dip in September resales largely reflecting hurricane-related disruptions in the Southeast. * We expect the Conference Board’s consumer confidence index to drop to 91.0 in October. The University of Michigan sentiment gauge slipped nearly 7 points in early October, to its lowest reading since April 2003. The downturn apparently reflected the impact of the recent rise in gasoline prices -- the impact of the move in crude from $40/bbl to $50+/bbl did not really show up at the gas pump until late-September. In addition, we suspect that negative campaigning tied to the upcoming election may be having a depressing impact on consumers’ assessment of the state of the economy. Overall, we look for about a 6-point dip in the Conference Board index. * We expect September durable goods orders to rise 0.8%, as order activity is expected to show its typical late-quarter advance in September. In particular, we look for solid gains in categories such as machinery and defense. Based on company reports, we look for the often volatile aircraft sector to flatten out this month. Finally, the key core component – nondefense capital goods excluding aircraft – is expected to match the headline reading of +0.8%. * We look for September new home sales of 1.17 million, as sales are expected to show a slight dip reflecting hurricane-related disruptions in the Southeast. The anticipated reading is close to the year-to-date average. * We forecast a 4.0% rise in third quarter real GDP, a gain that would be about in line with the trend seen since early-2003. Consumer spending (+4.5%) is responsible for the bulk of the anticipated gain in Q3. Business capital spending is also likely to show a solid rise (+15%). Residential investment is expected to be a neutral factor this quarter following a long string of sizeable advances. An anticipated rebound in defense spending should offset ongoing softness in the state and local government category. The major negatives this quarter are likely to be inventories (a -0.8 percentage point contribution) and net exports (a -0.4 pp contribution). Finally, the price index is expected to post a somewhat smaller advance than in recent quarters (+1.5%) as the run-up in energy-related costs occurred too late to have much impact on the Q3 data. * We expect the employment cost index to rise 0.9% in Q3, near the recent trend, with rapid gains in benefit costs continuing to be largely offset by modest wage increases. On a year/year basis, the ECI is expected to come in at +3.7% – well within the range that has prevailed for the past few years. From our standpoint, there is still sufficient slack in labor markets to restrain wage pressure for at least the next year or so. Meanwhile, although benefit costs are likely to continue to grow at a pace well above that of overall inflation, cost shifting is likely to prevent a significant acceleration from the current pace.

To: russwinter who wrote (13974)	10/25/2004 10:44:16 AM
From: mishedlo	Respond to of 116555

Buba revises down German Aug industrial output to fall of 1.2 pct from July Monday, October 25, 2004 2:35:46 PM afxpress.com FRANKFURT (AFX) - The Bundesbank said it has revised downwards German industrial output data for August to a seasonally adjusted fall of 1.2 pct month-on-month from a fall of 1.0 pct initially published by the Economy and Labour Ministry Economists had forecast on average a month-on-month decline of 0.5 pct

To: russwinter who wrote (13974)	10/25/2004 11:01:21 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

UK house prices fall for fourth month running in Oct - Hometrack Monday, October 25, 2004 9:27:03 AM afxpress.com LONDON (AFX) - House prices in the UK fell for the fourth successive month in October as higher borrowing costs continue to take their toll, according to Hometrack, the property website Hometrack found that house prices fell by an average of 0.6 pct during the month largely as a result of an excess supply of properties in the market and falling numbers of registered buyers As a result, Hometrack is now predicting no change in prices in 2005, though there are likely to be further house price falls in the coming months "While rising interest rates have influenced the recent run of house price falls, the key reason for the stagnating house price environment is that house prices have finally reached their peak in the current cycle," said John Wriglesworth, Hometrack's housing economist Nevertheless, Wriglesworth stressed that the present high levels of house prices can be maintained, given historically low interest rates, low unemployment and rising household incomes "We see no sudden or significant prospective downturn," he added. "Stagnation, not deflation, is the most likely future course of house prices over the next 18 months." Today's survey is likely to cement expectations that the Bank of England will not raise interest rates again this year A raft of weak economic data in recent weeks has convinced most Bank watchers that the rate-setting Monetary Policy Committee will keep its key repo rate unchanged at 4.75 pct at November's rate-setting meeting The MPC has raised the cost of borrowing a quarter point on five occasions since last November in an attempt to curb inflationary pressures stemming from rampant consumer demand, particularly in the housing market, and above-trend economic growth

To: russwinter who wrote (13974)	10/25/2004 11:42:05 AM
From: mishedlo	Respond to of 116555

Japan Sept dept store sales fall 4.4 pct yr-on-yr; 10th decline in 11 mths Monday, October 25, 2004 7:07:32 AM afxpress.com TOKYO (AFX) - Nationwide department store sales fell 4.4 pct year-on-year in September to 555.7 bln yen, the 10th drop in 11 months, the Japan Department Stores Association said The data cover 98 companies operating a total of 285 stores. The percentage changes have been adjusted to facilitate comparisons on a same-store basis The association attributed the drop to an unusually high number of rainy days last month, several typhoons and sluggish corporate demand A half hour earlier, another industry association reported that supermarket stores sales last month fell 3.7 pct from a year earlier, also the 10th decline in the past 11 months. Later the government will issue data for overall sales at the retail and wholesale levels last month Economists and investors will be studying all these reports for evidence of whether consumer spending is picking up in the wake of Japan's longest and strongest growth spurt in more than a decade. Consumer spending, which underpins 60 pct of the economy, must begin rising steadily to ensure the recovery continues if exports and corporate investment spending flattens out Strong growth in exports and capital expenditure, until now the main drivers of the recovery, have both been flashing signs recently of peaking out, at least temporarily Sales in September fell in six of the eight product categories, the department stores association said Sales of clothes, the largest product category accounting for 38.5 pct of total revenue, fell 8.5 pct year-on-year Sales of food, the second-largest category accounting for 21.5 pct of revenue, fell 1.0 pct. And sales of sundries, the third-largest category accounting for 15.2 pct, fell 2.8 pct Sales rose of handbags and accessories, the fourth-largest category accounting for 13.2 pct of revenue, fell 2.4 pct The four largest categories accounted for 88.4 pct of total revenue

To: russwinter who wrote (13974)	10/25/2004 11:49:53 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

U.S. Sept. existing home sales rise to 3rd highest ever - [What is interesting is that in spite of that, inventory rose by .4% to a 4.4 month supply AT THE SEPT RATE - mish] Monday, October 25, 2004 2:54:50 PM afxpress.com WASHINGTON (AFX) - Sales of U.S. existing homes increased 3.1 percent in September to the third highest rate ever despite the devastation of a series of hurricanes in the Southeast, the National Association of Realtors said Monday. Existing home sales increased to a seasonally adjusted annual rate of 6.75 million in September, ahead of the 6.52 million projected by economists surveyed by CBS MarketWatch. Sales in August were revised higher to 6.55 million from 6.54 million earlier. "Low mortgage rates have created a very favorable backdrop" to housing activity, said David Lereah, chief economist for the NAR. Since June, mortgage rates have dropped from 6.29 percent to 5.76 percent in September, despite three increases in the federal funds rate. "The Fed is still on task," Lereah said, but he doesn't expect mortgage rates to react as negatively to the Fed's rate hikes as they have in the past. Median sales prices rose 8.6 percent year-over-year to $186,600 The inventory of unsold homes on the market increased 0.4 percent to 2.45 million, a 4.4 month supply at the September sales rate. Sales rose in every region of the nation in September, except the South, where sales fell 0.9 percent. Lereah said he expects sales to pick up in the South in October as catch up to the activity lost to the storms Next year, the NAR will release a new leading economic indicator of housing that tracks pending home sales based on contracts signed. The current existing home sales data are recorded at closing

To: russwinter who wrote (13974)	10/25/2004 1:21:39 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Heinz on FedSpeak via email Janet Yellen: "In making decisions in real time, however, policymakers also need to estimate an intermediate-term equilibrium real rate that would promote full employment over the next several years." Heinz comments: the belief that monetary policy can be used to 'promote full employment' is ridiculous in the extreme. as Otmar Issing (ECB chief economist) has repeatedly pointed out, monetary policy can only aim to achieve a currency the value of which remains relatively stable, and it usually doesn't even achieve that. it is NOT a tool to promote 'economic growth' or 'employment'. the printing of money is not the same as creating wealth. the widespread fallacious belief in the central bankers omnipotence is of course most readily embraced by the central bankers themselves.

To: russwinter who wrote (13974)	10/25/2004 1:29:42 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Heinz on Don Coxe Article Don Coxe: corporate.bmo.com Email reply from Heinz Hi Mike, 1. health care costs: "In all other nations, governments pick up most of the cost for employees and all-or almost all the costs-for retirees. " this is a highly misleading statement. the 'government' means the 'tax payers' - iow, the money has to be extorted by the government SOMEHOW, SOMEWHERE. as it were, the "Lohnnebenkosten" as they are called in Germany (i.e., those costs a company must pay in addition to an employee's salary), are far higher in Europe than in the US. this includes everything from pension, health care, jobless fund contributions, to in some places even a 'metro tax' (a special tax to pay for a city's underground rail network), and so on. for instance, an employee earning EUR 5,000 gross per month costs a company about EUR 12,000 - 14,000 in Austria or Germany, NOT counting the fact that he has to be paid 14 times a year (there's a double salary payable in summer, essentially paying for an employee's vaction, and one around Christmas time, to pay for an employee's X-mas expenses). so while it's true that health care costs in the US are soaring, it is NOT true that US companies have therefore a 'competitive disadvantage' vs. companies in other industrialized welfare states. 2. dollar devaluation: "The stock market crash of 1987 was triggered by a sudden, market-driven plunge in the dollar, which caused a crisis in the Eurodollar market." this is not true, insofar as there was nothing 'sudden' about it. at the time of the '87 stock market crash, the dollar had been declining for 2 years already, and eurodollar futures had been under pressure throughout '87 (the Fed was busy raising the FF rate all year ). while it could be argued that Baker's threat to Germany over the weekend prior to the '87 crash to allow the dollar to decline even more unless 'Germany did something to revive growth' was a contributing factor, along with the then record monthly trade deficit of $17 bn., it was likely a combination of persistent dollar and bond market weakness, plus a clearly overbought stock market and the unfavorable news backdrop that triggered the crash. the crash itself then was worse than it would otherwise have been due to the 'portfolio insurance' strategy and unlimited program trading (i.e. program trading sans 'curbs') . in any case, the argument that the stock market crashed because of a 'sudden' dollar devaluation makes no sense and doesn't jibe with the historical facts. however, it IS likely that the dollar will fall further (long term anyhow - short term it looks a tad oversold, and the speculator short positions in it are too big for bear comfort), and it is even likely that this will eventually take the form of a crisis, i.e. a large fall in a short time span. but there's nothing anyone can do about this , so discussing 'policy options' is a complete waste of time. the time to take effective countermeasures has long passed, the unrestrained credit creation by the Fed during most of the 90's and especially over the past 5 years can't be undone anymore via 'policy', so economic history will run its course and do its bit to impose a correction of the imbalances via market forces. should the athorities attempt to intervene (be it to let the dollar down 'gently' or whatever else they have in mind) it would only serve to worsen what is potentially already a very bad situation. regards, hb