Flash Update
FLASH UPDATE
December 2, 2007
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What Is Scaring The Fed?
GDP Numbers Are Utter Nonsense
Other Data Show Tumbling Economy
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PLEASE NOTE: The November SGS-Alternate Dollar and the SGS-Alternate GDP Series have been updated and posted on the Alternate Data Series tab at www.shadowstats.com. The Financial-Weighted Dollar weightings have been revised to reflect the latest triennial currency survey by the Bank for International Settlements (BIS). Details will be covered in the December SGS newsletter. -- Best wishes to all, John Williams
The Fed Seems Scared. So much for speculation that there might have been a vestigial spine among the most senior members of the Federal Reserve Board. The Fed either is fully corrupt -- pandering to the needs of Wall Street manipulators -- or it sees something terribly frightening about to happen in the financial system. Given the people involved and the background of financial and economic conditions, there likely is an unhappy combination of both factors at play.
Up through last Tuesday, Fed governors were putting out the message that there was no further easing planned at the December 11th FOMC meeting. Then, Fed Vice Chairman Donald Kohn gave speech on Wednesday, and Chairman Ben Bernanke followed up with a speech on Thursday. The markets swallowed the hyped-up spiel that the Fed was going to ease and maybe by 50 basis points (0.50%). The speeches indicated that the Fed remained flexible and was watching conditions closely. There was nothing obvious in the language used that the Fed had reversed its no-easing stance.
The tip-off came in a Financial Times article, the day of Kohn's speech, with the happy news that, "analysts close to the Fed believe vice-chairman Don Kohn will use a speech today to pull the US central bank back from its confrontation with the markets over the outlook for the economy and interest rates." This information was leaked. Granted, Mr. Greenspan used to plant stories in the U.S. press to help the sometimes misguided U.S. markets, but this story appears to have been leaked ahead of time for some traders, with stocks rallying strongly the day before the speech. Of course, stocks soared on activation of the gimmick.
Last week also saw some U.S. dollar rebound, along with sharp selling of gold and oil. All three markets likely were helped along by some Fed/Plunge Protection Team guidance and support (the Fed/PPT can manipulate in any market they choose). Irrespective of any central bank shenanigans, the outlook remains sharply on the downside for the greenback against the major Western currencies, and on the upside for both gold and oil.
The problem for the Fed remains that the underlying difficulties have not changed, and any central easing will do little to spur business activity, while intensifying dollar dumping. There are enough concerned Fed governors to provide significant dissension at an FOMC meeting aimed at lowering rates, and Bernanke knows it. He waffled with his comments this week, and he may waffle further, as renewed heavy dollar selling -- which will come -- will seriously impair domestic liquidity at a time that the system is reeling from issues of solvency among a number of large U.S. financial institutions.
Employment Numbers May Play Role. This Friday's employment report could be used to decide or at least to try selling any forthcoming rate action or lack of same. Fundamentally, the numbers should be horrible; October help-wanted advertising sank anew, while jobless claims continued to rise. Treasury Secretary Paulson would use such to put the screws to the Fed. Likely, Bernanke already has a sense of what the November labor surveys showed; perhaps that even triggered the waffling. Despite last week's games playing, however, the Fed likely would prefer to see a strong number, which then could be used to attempt pulling back from the brink, at least temporarily. What actually gets reported on Friday for the payroll change and unemployment rate should be heavily politicized.
GDP Nonsense. If GDP were the guide, jobs would be soaring. The "preliminary" estimate revision for real (inflation-adjusted) annualized third-quarter GDP growth showed the economy booming along at a 4.92% rate, revised from 3.90%, with year-to-year change revising to 2.85% from 2.59%. As suggested in the last newsletter, these numbers indeed were meaningless as indicators of economic activity and only served a function useful to White House, Fed and Wall Street spin doctors.
Durable Goods, Housing, Etc. Sink Again. Consider this further indication of the quality of the data coming from the government's statistical propaganda mills. Despite the National Association of Realtors' estimate that existing homes fell in October by 1.2% for the month and by 20.7% year-to-year, new home sales in October rose by 1.7% for the month, according the Census Bureau. This happened only because of a 9.3% downward revision to the prior month's level, which also erased a previously reported 4.8% monthly gain for September.
In addition to faltering background labor indicators, other reporting last week was consistent with a deepening recession. October new orders for durable goods fell by a seasonally-adjusted 0.4% for the month, but gained 3.1% year-to-year. That, however, was a contraction after inflation adjustment. The Conference Board's November consumer confidence measure fell by 8.3% for the month, and by 17.1% year-to-year.
The economy already is in recession, but few in the markets or politics are willing to admit it. Such is normal in this phase of a downturn. Mr. Bernanke certainly is aware of the business contraction, but he is afraid to admit that he should keep interest rates relatively high in an effort to hold the dollar and to prevent a systemic meltdown. The Fed continues in a no-win situation.
A Flash Update will follow Friday's employment data release, with further details in the December SGS newsletter.
The December SGS is targeted for late in the week of December 17th. An e-mail advice will be made of its and intervening Flash Update/Alert postings.