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

To: russwinter who wrote (18882)	12/17/2004 6:46:44 PM
From: mishedlo	Read Replies (3) \| Respond to of 116555

I'd highlight this part of that article: "The real risk to manufacturing is the rising cost of raw materials," said Lynn Reaser, chief economist with Banc of America Capital Management, pointing to the factor that some manufacturers have cited as a drag on earnings in recent warnings. LOL I was 100% positive of your reply, almost to the exact word. I should have posted your reply on another board to prove it. Then again this was pretty easy, then again, I had your words EXACT, except I would have posted "I would highlight this portion of the article" seriously At any rate where does it end? You saw what happened when Walmart tried to raise prices didn't you? Do you really think GM and F can raise prices? I simply can not understand the stock market rising as layoffs continue and price squeezes are screwing everybody but the top end. Did you see those housing numbers? OK so China keeps bidding up commodities but the consumer of last resort can not or will not pay for them. What is next? Now you think these prices are being passed on. To some extent they are, or CPI would not be rising. But... They are certainly not being passed on at the rate at which input prices are rising. I know full well your position: PPI increases will be passed on or companies will go out of business. Well why can't they go out of business and why can't that be part of China's stategy? 1 out of 37 people in Nevada went bankrupt last year. Amazing! Did you see that article? What happens when 1 out of 37 Californians goes under? IMO this train is about ready to wreck and it will have taken far less hikes than you think. The reason is leverage. FNM is about ready to implode now. One would never know it from the stock price. Even IF FNM does not implode, what happens to spending if housing stalls, given what we are looking at in housing starts and autos right now? Gasoline prices headed back up. You seriously want me to believe that is inflationary? Yeah yeah yeah circular argument again. No I do not want to go there. Where I want to go is what happens if GM and F can not pass on those steel hikes. Surely you 100% agree that they can not. Now what about Walmart that tired to pass on hikes and then BAILED? The end game is here Russ. You tell me what happens now. Mish

To: russwinter who wrote (18882)	12/17/2004 8:59:59 PM
From: mishedlo	Respond to of 116555

Northern Trust on the CPI northerntrust.com Consumer Prices -- A Moderate Increase in November The Consumer Price Index (CPI) rose 0.2% in November, which is a moderate increase after a 0.6% jump in October. The energy price index rose only 0.2% in November vs. a 4.2% increase in the prior month. Food prices (+0.2% vs. +0.5% in October) also rose less rapidly in November. Year-to-date, the CPI has risen at an annual rate of 3.7% compared with a 1.9% increase in 2003. ...................... ......................... Conclusion – A February 2 hike of the federal funds rate is a close call because the core CPI has risen 120 basis in the first eleven months of the year. Wholesale prices also show a noticeable gain from 2003. A significant upward revision of October retail sales has improved the trend of consumer spending in the fourth quarter. These bullish economic numbers strengthen the case for the Fed to continue taking measured steps. At the same time, the tepid increase in payrolls, a deceleration in factory activity and orders of non-defense capital goods, the two consecutive monthly declines in auto sales, a sideways movement of jobless claims, and five monthly declines of the leading index suggest moderating economic conditions and good reasons for a pause. The nature of incoming data will influence the vote on February 2. Weak employment numbers and soft consumer spending in December will be necessary for the Fed to pause at the close of February 2 meeting.

To: russwinter who wrote (18882)	12/17/2004 10:47:03 PM
From: mishedlo	Read Replies (2) \| Respond to of 116555

Norther Trust weekly report Paul Kasriel [A few snips but one can not appreciate the snips alone. Lots of interesting charts in the attached link. Read it Mish] Relative to our after-tax income, the value of houses, and the ground under them, reached a new record high at 192% in the third quarter (see Chart 1). This escalation in home prices relative to household income finally appears to be having a negative effect on housing affordability. In the two quarters ended Q3:2004, the 30-year mortgage rate increased a minuscule net 29 basis points (based on quarterly averages of interest rates). But in that same period, an index of housing affordability declined by 9.44% (not annualized). Maybe this is why adjustable-rate interest-only mortgages are becoming so popular. Even with relatively low 30-year mortgage rates, many folks are not finding homes affordable given the sharp rise in the value of residential real estate. If the Fed keeps pushing up short-term interest rates, home-price bids might start to soften as housing gets less affordable even if financed with adjustable-rate interest-only mortgages. Back in the late 1990s, when the P/E ratios on corporate equities were climbing to the sky and some of us Chicken Littles were warning that the sky would be falling, we were told that “it’s different this time.” Currently, the P/E ratio on owner-occupied housing is also climbing to the sky, hitting a record high 18.2 in the third quarter. But the “it’s-different-this-time” crowd will point out that a high P/E ratio on housing is to be expected because interest rates are low. But some of us Chicken Littles would point out that in 1965 the 10-year Treasury was trading around its third quarter average of 4.30 and the P/E ratio on housing was only 13.3 vs. today’s 18.2 (see Chart 2). It very well may be different this time – much worse for housing when interest rates climb more. ........................................ Households continue to put a lot of their nest eggs in one basket – their houses. Chart 4 shows that residential real estate represents a record-high 29% of the value of total household assets. Sure hope it pays off for all of us rapidly-aging baby boomers. But as I said a number of commentaries ago, if it doesn’t work out, we will become a nation of bed-and-breakfast proprietors, renting rooms to Chinese and Indian tourists. ....... Now let’s turn to Corporate America. We have some role reversal here. As mentioned above, after decades of being net providers of funds to the rest of the economy, households have now become net demanders of funds. Curiously enough, after decades of being net demanders of funds, nonfinancial corporations have become net providers of funds to the economy. That is, corporations are not spending all of their after-tax after-dividend cash flow on capital equipment and inventories. Although the amount of funds nonfinancial corporations are providing to the economy is small – only $20.3 billion on average in the four quarters ended Q3:2004 – as shown in Chart 8, any positive net financial investment by these corporations is very unusual. What makes it especially unusual is that the cost of capital – be it equity or debt capital – is so low now. This suggests that the expected return on capital in the U.S. might be unusually low now. And enjoy these stocking stuffers over your Christmas and New Year’s holidays. To cheer you up over the holidays, I am going to take a couple of weeks off from writing these dreary commentaries. Aren’t you feeling cheery already? ====================================================================== This is a mandatory read Read the rest here: northerntrust.com

To: russwinter who wrote (18882)	12/17/2004 11:16:11 PM
From: mishedlo	Respond to of 116555

OZ investors take another hit on land tax Sydney Morning Herald -- By Lisa Pryor, Urban Affairs Reporter -- December 18, 2004 smh.com.au. Many property investors and holiday-home owners will pay bigger land tax bills next month, despite falling real estate prices, because the Valuer-General says land values have increased by an average 19 per cent in a year. The higher valuations could also force up rents and council rates, which are partly based on official land values. During the valuation period - the 12 months to July 1 this year - NSW house prices rose 11.01 per cent and Sydney house prices 11.83 per cent, although they have fallen since. But land valuations have risen sharply, especially outside Sydney. In Albury, they are up 60 per cent. It will be another slug for property investors, who this year have faced an exit tax of 2.25 per cent on the sale of property for the first time, on top of faltering prices and interest rates nudging higher. The Valuer-General, Philip Western, said there was no discrepancy between land value and property sales figures, because price falls were not necessarily due to a drop in the land component of the price. The increased valuations could negate the savings property owners were expecting to make from the reduction in the land tax rate this year, from 1.7 per cent to 1.4 per cent for more expensive blocks. Owners of land valued at $500,000 would have previously paid $3211 in land tax. Now they will pay $3530, if a 19 per cent rise in land value is factored in. The president of the Real Estate Institute of NSW, Rowen Kelly, agreed with Mr Western that land prices maintained or increased their value while buildings depreciated with age, so the increases were "understandable". But he warned any tax rise would put more pressure on small investors, which could lead to rent increases by the second half of 2005. A land tax activist, David Singer, said the increases were "fictitious" and showed the Valuer-General was playing catch-up after years of undervaluing properties. Mr Western denied this, saying: "All we're doing is analysing the sales information that's coming through and then ... making a professional judgement in relation to that." Property price falls were coming from the "improved value" of the land - rather than the land itself. "We've seen substantial growth for the regional centres, anything away from the eastern seaboard. We've seen places like Orange, Bathurst, Dubbo and Wagga Wagga have all shown growth in the vicinity of 30 per cent." Sydney valuations generally increased by less than 20 per cent, with some exceptions. The figures include commercial and retail properties, as well as homes. Higher land values could have big ramifications for council rates. Wollongong, for example, calculates its rates based on a 50 per cent base rate, the remainder on land values. Hundreds of thousands of investors and holiday home owners will pay land tax for the first time in the new year because land holdings worth less than $317,000 are no longer exempt. Owner-occupiers are exempt.

To: russwinter who wrote (18882)	12/18/2004 12:11:18 AM
From: mishedlo	Respond to of 116555

Credit Bubble bulletin noteworthy snips December 16 – Bloomberg (Julia Werdigier): “Johnson & Johnson’s $25.4 billion takeover of Guidant Corp. and 71 other acquisitions announced today made this quarter the busiest for mergers in more than four years. Companies have spent $575 billion on takeovers since the start of October, the most since the second quarter of 2000, when $761 billion of acquisitions were made, data compiled by Bloomberg show. At least 72 purchases worth $59 billion were announced today.” The spread (to 10-year Treasuries) on Fannie’s 4 5/8% 2014 note widened 2.5 basis points to 41, and the spread on Freddie’s 5% 2014 note widened 1 basis point to 34. The 10-year dollar swap spread increased 0.5 to 39.75. Corporate bonds were mixed, with junk spreads widening moderately. Freddie Mac posted 30-year fixed mortgage rates dipped 3 basis points this week to 5.68%. Fifteen-year fixed mortgage rates were also down 3 basis points, at 5.11%. One-year adjustable-rate mortgages could be had at 4.18%, up 3 basis points for the week. It is worth noting that, with the Fed funds rate up 125 basis points from one year ago, 30-year fixed mortgage rates are actually down 15 basis points, while one-year adjustable mortgages are up only 41 basis points. The Mortgage Bankers Association Purchase application index dipped 0.4% for the week. Purchase applications were up about 13% from one year ago, with dollar volume up 24%. Refi applications fell 2% during the week. The average new Purchase mortgage dipped to $226,800, and the average ARM declined to $304,800. ARMs dipped slightly to 34.2% of total applications. December 15 – Bloomberg (Sam Fleming): “U.K. wages excluding bonuses rose 4.4 percent in the three months through October, the fastest pace since March 2002, as the number at work climbed to the highest since records began. Wage growth climbed from 4.3 percent in the month-earlier period…” December 13 – Bloomberg (David Altaner): “Whirlpool Corp. and Maytag Inc. are among manufacturers raising prices to cover the increasing cost of raw materials because they can no longer absorb it with productivity improvements and reduced profit margin, the Wall Street Journal said today, citing examples. The appliance makers have said they will raise prices by as much as 10 percent in January…” December 16 – Bloomberg (Martin Z. Braun): “The New York State Thruway’s board of directors authorized a plan to raise tolls on the 641-mile highway for the first time since 1988 to help fund $2 billion in capital improvements. Under the plan, Thruway tolls would increase 25 percent for passenger cars and 35 percent for commercial vehicles starting May 1, 2005.” I’m going to go out on a limb (ok, a pretty sturdy one) and predict that going forward we will be hearing much less about the Fed having “won the war on inflation.” Similar talk of a convenient (with a low CPI) “inflation targeting” approach to monetary policy will fade, as will wishful notions of the Fed having its work wrapped up at 2.50%. The inflation genie has been let out of its bottle, and historians will likely look back to the bursting of the dollar Bubble as a key inflection point in U.S. and global inflation dynamics. But for now - awash in and intoxicated by liquidity - global Credit market perceptions remain today far behind the inflation curve – echoing the Fed. But the Fed should appreciate that there is today a very high cost associated with Dilly-Dallying. Rates should have been increased before the California (and elsewhere) housing mania took firm hold. After all, once feverish speculative impulses take over and price inflation spikes upward, significantly higher rates are required to temper excess. At that point, the risk of “tempering” inflated asset Bubbles includes a crash. Dilly-Dallying guarantees a Big Crash. It is my sense that very powerful global boom and bust dynamics have taken hold the past year, as the Fed Dilly-Dallied fed funds to a paltry 2.25%. The financial world – of unfettered high-powered leveraging, speculating and derivatives – moves these days at lightning speed. Yet the Fed somehow believes it has no alternative than to adjust in s-l-o-w m-o-t-i-o-n. As history has taught us, the cost of falling behind the curve is that only more aggressive monetary restraint is required down the road. This certainly appears to be the way things are progressing at this time, and it will be fascinating to watch how long the bond market can continue to disregard this reality. prudentbear.com My comment. Yes he is out on a limb way out on a limb and it will be painful to watch when housing plunges. Treasury yields will head lower Mish