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

To: Earlie who wrote (51786)	5/26/2006 7:05:59 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Price indexes overstate inflation, Bernanke says Thursday, May 25, 2006 9:05:29 PM afxpress.com WASHINGTON (AFX)-- Commonly used government price indexes overstate the level of inflation in the economy, Federal Reserve Chairman Ben Bernanke said Thursday In a letter to Rep. James Saxton, R-N.J., responding to questions left over from his recent testimony to the Joint Economic Committee, Bernanke said both the consumer price index and the Fed's preferred gauge, the personal consumption expenditure price index, overstate inflation, but show that core inflation is well contained. Fed policymakers are well aware of the upward bias in the inflation gauges. That's one reason why Fed officials have said they want to keep core inflation measures between 1% and 2%; it gives them a cushion to make sure actual inflation rates don't fall below zero. The Fed has no official inflation target or range "Although increases in energy prices have pushed up overall consumer price inflation over the past couple of years, core inflation has been more stable," Bernanke wrote to Saxton. Core inflation excludes the volatile food and energy categories, in order to get a better handle on underlying inflationary trends "The core PCE price index increased 2% over the 12 months to March of this year, about the same as the increase over the preceding 12 months," Bernanke said. "Similarly, the core CPI has increased 2.25% over each of the past two years." The stability of core inflation "has been enhanced by the fact that long-term inflation expectations appear to remain well contained," he wrote The Federal Open Market Committee said after its May 10 meeting that "the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation" and that "inflation expectations remain contained." "Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures," the FOMC said. The Fed has signaled that it may pause in June after 16 straight rate hikes, but that a pause would depend on incoming data and would not guarantee an end to rate hikes. A June rate hike is still a tossup, with markets giving it a 54% chance. PCE price index is more accurate According to a recent study by Fed economists, the CPI likely overstates inflation by about 0.9 percentage points, Bernanke wrote. The PCE price index is better, but also has some upward bias, he said. The PCE price index is preferred by the Fed over the CPI as an inflation measure because it is constructed in a way that captures changes in consumer behavior as prices change. The relative weighting the PCE puts on various consumer categories is also more accurate, he said. In particular, the PCE price index gives housing less weight than does the CPI, while giving more weight to medical expenses. One downside to the PCE price index is that it includes prices of some goods and services that are set in the marketplace, "and so may add some noise to the overall index as a proxy for the cost of living," Bernanke said Although Bernanke did not mention it, the Commerce Department calculates a separate PCE price index that includes only market-set prices, perhaps providing a solution to some of Bernanke's concerns. The market-based core PCE price index has increased 1.5% in the past year, down from a 1.8% gain in the year ending in March 2005 The Commerce Department will report on the PCE price index Friday as part of its monthly income and spending report. Economists expect the core PCE price index to increase 0.2% in April. In the past year, the CPI is up 3.6%. The PCE price index is up 3%. The market-based PCE is up 2.9% fxstreet.com

To: Earlie who wrote (51786)	5/26/2006 7:17:35 PM
From: mishedlo	Respond to of 116555

Global: The Last-Bear Syndrome Stephen S. Roach (New York) morganstanley.com more wimpiness from Roach Mish

To: Earlie who wrote (51786)	5/26/2006 7:18:52 PM
From: LLCF	Respond to of 116555

Yes, still have nice profits in my pooots, but should have cashed in... the ole 'rally into the holiday' deal. :) Not much time left as Summer tends to be tough on premium. I'll be nibbling on golds all summer I think. DAK

To: Earlie who wrote (51786)	5/26/2006 7:30:43 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Foreclosures Soar in Chicago Area biz.yahoo.com The soaring rate of foreclosures is quickly transforming what has long been a seller's market into a buyer's market. "During the refinancing boom, people found themselves qualified for homes they might not have qualified for if the interest rates were higher," explains Jeff Metcalf, founder and CEO of Record Information Services Inc. (RIS), a suburban Chicago-based company specializing in marketing data collection. "Any movement up in the mortgage rates, particularly for those who used adjustable rate mortgages, is going to affect a lot of people." Based on first-quarter figures, Metcalf believes the foreclosure rate for 2006 in the metropolitan area will increase by as much as 25%. The rate will be much higher in the fastest-growing collar counties. "It's going to be more severe (than in 2005)," he says. "After so many years of good economic growth in the housing industry, the real estate market is slowing down." Using projections based on first-quarter foreclosures, RIS sees a grim situation for financially-pressed homeowners, but plenty of opportunities for investors in troubled properties. In Will County, for example, RIS is predicting foreclosures rates will rise 51% over 2005, when more than 1,900 homes were lost to foreclosure proceedings. In the first quarter alone, foreclosures in Will County totaled 957 homes.