Flash Update
FLASH UPDATE
November 9, 2007
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October M3 Growth Breaks to New 36-year High
Trade Numbers Again Appear Massaged
Beware Next Week's Surge in Annual Inflation!
The System Begins to Crack
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PLEASE NOTE: The SGS-Ongoing M3, based on roughly four weeks of data for October will be updated over the weekend on the Alternate Data tab at www.shadowstats.com. -- Best wishes to all, John Williams
With the dollar tanking and oil and gold at or pushing record highs, the worst of all worlds has started to settle in on the U.S. financial markets: an inflationary recession, a hamstrung Fed, and former foreign fuelers of U.S. financial market liquidity starting to dump the dollar. Beyond any short-term and short-lived central-bank intervention in these markets, which always is a possibility, the system has started to falter. One key signal that has yet to surface, though, is the dumping of long-term U.S. Treasuries. Treasuries still are acting as something of a traditional safe haven. When the flow turns out of the Treasuries and U.S. dollar for safe haven elsewhere, circumstances will begin to turn nasty, quickly.
SGS-Ongoing M3 Annual Growth Tops 15%. Subject to tonight's release of the large time deposits at commercial banks for the last week in October, the SGS-Ongoing M3 estimate of October annual growth tentatively is at 15.2%, the highest level since August 1971 (closing of the gold window), up from 14.7% in September and 13.9% in August. The formal preliminary estimate will be posted over the weekend at the Alternate Data tab of www.shadowstats.com. If the current estimate holds, the pace of increase in the monthly annual growth rate will have slowed, but with growth at dangerously inflationary levels.
Trade Numbers Remain Politicized. The September trade deficit was reported in such a manner as to help the U.S. dollar, not to hurt it. Continued severe understatement of oil import activity helped to reduce the seasonally-adjusted September trade shortfall to $56.5 billion from a revised $56.8 billion (previously 57.6 billion) in August. These numbers remain nonsense, as will be discussed in the upcoming newsletter, and promise some upside revision to the otherwise unbelievable estimate of third-quarter GDP growth.
Week Ahead -- CPI Surge Next week's data will begin to show an inflation toll. Not only are both the randomly volatile PPI (Wednesday, November 14th) and the CPI (Thursday, November 15th) at fair risk of topping expectations for October, but also, because of relatively weak oil price effects last year, year-to-year or annual inflation will spike. For example, to the extent that month-to-month seasonally-adjusted CPI inflation tops last year's 0.4% decline, the difference will add directly to the annual inflation rate. If consensus expectations of a 0.3% CPI monthly gain are met, that means that roughly 0.7% would be added to September's 2.8% annual inflation, or a level of 3.5% (the precise measure will vary depending on rounding).
Also due is October retail sales (Wednesday, November 14th), which, barring direct manipulation, likely will disappoint already soft expectations. Further, if not otherwise gimmicked, monthly change is a good bet to be negative, after inflation adjustment, with real annual growth below 1.8%, patterns consistent with an ongoing recession.
Further details will follow in the November SGS newsletter.
The current target date for the posting of the November SGS is for next weekend, so as to include the October CPI data. An e-mail advice will be made of its and any intervening Flash Update/Alert postings.