Bernanke

[zynner]

Quote by: bishop hey.. things move randomly..

I disagree. The "random walk" or "efficient markets" theory is false. But this is not a stock market website, so we might just have to agree to disagree on it.

i also never disputed the fact that the economy's slowing down. but, slowdown's do not instantly mean recession - or bear markets.

Well, if the slowdown is severe enough, then it does in fact mean a recession. That's how recessions are definined, after all. The only question is whether it will be severe enough to be classified as a "recession."

And I made the comment that we are in a bear market for stocks because that's what it is. You can wait for another few months for all the pundits to put their stamp of approval on the "Bear" word, but they will only be doing so after the fact. They never get it right while it is actually happening. They only tell you what happened later.

Oh...

And more evidence of not only a slowdown but a rise in inflation. Can you say "stagflation?"

Economy Slows Sharply, Inflation Heats Up in 2nd Quarter, Commerce Department Says WASHINGTON (AP) -- The economy's growth in the second quarter was less than half that of the prior three months as consumers tightened their belts and spending on home building nose-dived. Inflation, however, shot up. ADVERTISEMENT The latest snapshot released by the Commerce Department on Friday showed that that gross domestic product grew at an annual rate of just 2.5 percent in the April-to-June period. That marked a big slowdown from the January-to-March quarter, when the economy zipped along at a 5.6 percent annual rate, the fastest in 2 1/2 years. Gross domestic product measures the value of all goods and services produced within the United States and is considered the best barometer of the country's economic standing. "The economy has significantly throttled back but inflation pressures are developing more fully," observed Mark Zandi, chief economist at Moody's Economy.com On Wall Street, though, stocks rallied on the hope that slowing growth would convince the Federal Reserve to take a break from raising interest rates. The Dow Jones industrials were up 84 points and the Nasdaq gained 25 points in morning trading. The second-quarter's performance -- which reflected the bite of high energy prices and rising interest rates on people and businesses as well as a cooling in the once red-hot housing market -- was weaker than the 3 percent pace analysts were forecasting. The 2.5 percent pace was the slowest since a 1.8 percent growth rate in final quarter of 2005, when the economy was suffering fallout from the devastating Gulf Coast hurricanes. Even though the economy cooled in the second quarter, inflation heated up. An inflation gauge closely watched by the Federal Reserve showed that core prices -- excluding food and energy -- jumped at a 2.9 percent annual rate in the second quarter -- far outside the Fed's comfort zone. That was up from a 2.1 percent growth rate in the first quarter and marked the highest inflation reading since the third quarter of 1994, when core inflation rose at a 3.2 percent pace. The inflation reading was taken before the latest run-up in energy prices. Oil prices hit a record closing high of $77.03 a barrel on July 14. Gasoline prices also have marched higher, topping $3 a gallon in many areas. In a separate report from the Labor Department, employers' costs to hire and retain workers picked up in the second quarter, a development that also could raise some inflation concerns. Compensation costs -- including wages and benefits -- rose by 0.9 percent in the April-to-June period, up from a 0.6 percent increase in the first quarter. Economists were calling for a 0.8 percent rise. Although Federal Reserve Chairman Ben Bernanke said he is concerned about rising inflation, he told Congress last week that the Fed believes moderating economic activity will eventually lessen inflation pressures. That assessment raised hopes on Wall Street that the Fed might take a breather in its two-year-old rate-raising campaign at its next meeting, on Aug. 8. Some economists, however, continue to predict that rates will be bumped up again at the August meeting to ward off inflation; after that, they think the Fed may move to the sidelines. The report comes as President Bush is getting low marks from the public for his handling of the economy, according to a recent AP-Ipsos poll. With energy prices and borrowing costs rising, consumers turned cautious in the second quarter. They boosted their spending at just a 2.5 percent pace, down from a 4.8 percent growth rate in the first quarter. Much of the weakness was in consumers' appetite for big-ticket goods, such as cars and appliances. Businesses also tightened the belt. Spending on home building was cut by 6.3 percent in the second quarter, the deepest dip in nearly six years -- since the third quarter of 2000. Rising mortgage rates are clipping demand. Businesses sliced spending on equipment and software at a 1 percent pace, the first cut in just over three years. Government spending also was more subdued, growing at a pace of just 0.6 percent in the second quarter, compared with a 4.9 percent growth rate in the first quarter. The federal government cut spending in the second quarter, while state and local governments boosted spending. As the economy has moderated, so has job creation. For the April-to-June quarter, employers added an average of 108,000 jobs a month, the government reported earlier this month. That's down from the average of 176,000 a month for the January-to-March period. Along with the latest GDP report, the government issued annual revisions that showed economic growth was slightly less than previously estimated for 2003, 2004 and 2005. The main reason for the downgrade: business investment in computer equipment and software wasn't as strong as previously thought. As a result, the economy last year grew by 3.2 percent, rather than 3.5 percent. In 2004, economic activity expanded by 3.9 percent, instead of 4.2 percent. And in 2003, the economy's growth was 2.5 percent, versus 2.7 percent. The revisions also showed that core inflation rose by 2.1 percent for all of 2005, a tad higher than the 2 percent reading previously estimated. Core inflation for 2004 was unchanged at 2 percent but was pushed up a notch to 1.4 percent for 2003.

http://biz.yahoo.com/ap/060728/economy.html?.v=11

Upward revisions for each of the past three years! LOL. Makes ya wonder 'bout them gubmint statistics, huh? ;-)

The stock market is having a good day so far this morning. Looks like people are expecting the economic slowdown to make the FR stop raising the federal funds rate. But what about that inflation? Bernanke is of the school that says you raise rates to stop inflation. We'll see how all this plays out between now and the elections.

~ zynner

[bishop]

good to see that there's someone else here who frequents yahoo finance..

inflation seems almost entirely due to pass-through inflation on input prices (namely oil).. the other bit was that worker wages and benefits has seen a steep increase in recent weeks..

the latter should eventually stabilize as employers gain leverage over labor, and can dampen wages.. the former is out of the fed's hands - and i hope they realize that. but, stagflation has been on my mind for several years now (i used to post about it on another forum all the time before joining volconvo).. imo, the fed held rates too low for too long a time - and the government's inexcusable recklessness in spending is another big reason why we are where we are.

[Samildanach]

Bernanke is of the school that says you raise rates to stop inflation.

Indeed he is but it seems I am hoping he is wise enough to know when enough is enough. If your housing market starts to deflate, its usually a good sign to wait for a bit to see how it follows through, I'm still betting on a pause even though the market is evenly split at this time.

[zynner]

Bernanke just got hit with the worst possible scenario on economic reports: inflation up but economy down.

Damned if you do and damned if you don't.

Also heard on the radio yesterday that foreclosures were up 67% last month (not sure if that was nationwide or a particular region).

~ zynner

[bishop]

and to add insult to injury, this investigation over stock options is a minor enron in the making..

apple, for example, is going to take it hard in the ass tomorrow..

http://biz.yahoo.com/ap/060803/apple...ons.html?.v=11

my state was the one with that foreclosure figure... of course, it should also be noted that foreclosures have been increasing across the board since 2004..

i've been doing a lot of fundamental analysis on certain tech companies.. companies like intel have been decimated by the market for purely emotional reasons... the company's cash flows are all supremely strong, profits continuously grow, etc.. in questionable times like this, it's a good bet to go with companies with solid fundamentals. speculative investing is best done during times of decreasing interest rates imo..

i've been closing out certain positions i was long in over the past 2 weeks. got out of energy, which is way overvalued.. i'm still long in gold and india though. those are more long-term investments though, so i'm not so concerned about any volatility they experience over the next decade or so.

[zynner]

Seems most people think the Fed will not raise rates this time around, I will go out on a bit of a limb and say they will raise 0.25%, but will attempt to calm the markets with a change in their accompanying statement that indicates they think they are done. (They're not.)

Other central banks have just raised their rates. If the FR does not, the USD tanks. Plus, the recent jobs report was weak in terms of job growth, but incomes were up 0.4% for the month (almost a 5% annual rate).

That's why I think Bernanke will want to raise (12 members get to vote, but he heads the parade) -- but they will have to issue a neutralizing statement with it to keep the US stock market from tanking.

Of course, the best of all worlds would be to abolish the Federal Reserve once and for all. If we do get an economic disaster coming, I hope people will see the FR and Alan Greenspan for what they are: leeches.

~ zynner

[Samildanach]

I am as close to certain as I get they will not raise rates, it would basically be economic suicide at this point. You have a housing market that has cooled already and you are beginning to see the flow on effects in terms of low job creation.
If Bernanke raises rates again you can pretty much say goodbye to the housing market and a lot of people in that industry which accounts for a good deal of your jobs in the nation.
The USD is going to tank, its just a matter of when more than anything else. Its possible that in the near future there is going to be a HUGE amount of money to be made when the dollar really starts to lose stability although that may well not happen for a few years yet but its definitely being factored into long term estimates by a lot of banks that are slowly diversifying out of the dollar now and trying to give it a soft landing so as not to destabilise the world economy.

[zynner]

Quote by: Samildanach I am as close to certain as I get they will not raise rates, it would basically be economic suicide at this point.

Yeah, but if they don't raise then the dollar will likely weaken, which is another form of financial suicide. They are caught between a rock and a hard place because of Greenspan's bad ideas.

You have a housing market that has cooled already and you are beginning to see the flow on effects in terms of low job creation. If Bernanke raises rates again you can pretty much say goodbye to the housing market and a lot of people in that industry which accounts for a good deal of your jobs in the nation.

I agree, but there's another problem. The Fed only controls very short-term rates, not longer-term rates. Adjustable rate mortgage loans are pegged to short-term rates (and some loans are pegged to European rates). Fixed rate mortgages, however, are pegged to 10-year treasuries.

Consider this scenario: The Fed does NOT raise, the US dollar weakens, foreigners sell US treasuries (not tomorrow, but over several months or years) and that drives longer-term rates UP. That, in turn, drives fixed mortgage rates up, which kills off the housing market DESPITE NO FED RAISES. Interesting, huh? See the Fed dilema?

The one thing they might try that few are talking about is monitizing the debt. Basically, they would give all outward appearances of fighting recession by not raising rates, but then buy up stocks, bonds, and US dollar if they tank. This would be done behind the scenes, secretly. Some people suggest that this is the very reason they stopped publishing M3, the broadest measure of the Money Supply.

They could only do this by inflating the Money Supply -- ramping up the printing presses -- and guess what? Ben Bernanke is a BIG TIME believer in this idea. When you combine his appointment with the announcement to stop publishing M3, along with the odd Caribbean buying of US assets, it seems like a real possibility.

~ zynner

[bishop]

i'm definitely betting on another rate hike... there's a lot more to the economy than the real estate market - and in particular, speculators who decided to get variable rate mortgages believing that they would flip their investment for some absurd profit. fixed rate mortgages are still reasonable, which is why we are once again flirting with an inverted yield curve.

but besides real estate, we're seeing a significant drop in productivity and an increase in wages.. under greenspan, that scenario would certainly result in a rate hike - question is, how similar are bernanke's views to greenspan's? diminishing productivity and increased wages are both a perfect recipe for inflation as well as mass layoffs, drops in consumer confidence and spending, etc...

http://biz.yahoo.com/ap/060808/economy.html?.v=4

imo, there is still strong growth across the aggregate - but there clearly seems to be big problems looming on the horizon. i'm not yet of the opinion that they are insurmountable, but i'm beginning to lean that way.

[zynner]

So...

The market gets what most were looking for, a pause by the FR, and the market still sells off.

Bear market.

Hope you're not long that ESLR, Bishop. $8.84 and going lower.

~ zynner

[bishop]

nope, i already posted about that:

Quote by: bishop i haven't jumped back into evergreen just yet because there's clearly a selloff going on and i'm waiting to see the valley.. the most questionable thing about that company is the exorbadent increase in sg&a expenses.. looks like management's pumping all the company's money into their own pockets.

the stock definitely served me well for quite a while though, although there's no way i'd touch it again right now.. between 10%-30% every time i'd flip it, and i played it about ever other month for over a year. but, nobody should ever fall in love with a stock, and i don't either.

that said, it looked like eslr's price drop following bernanke's announcement was just a bunch of hysteria.. could represent a good short-term buying opportunity, even though i'm not going to take the bait.

the only two that i'm holding on to right now are GG and IFN.. gold's a decent thing to hold on to right now imo, and i'm going to hold on to IFN for decades, so i don't care so much about whatever happens in the market right now (plus it pays very healthy dividends).


i was surprised that the fed did decide to stop hiking rates this time around... but, i still think that we're going to see future rate hikes in the future.. it's going to happen until the fed induces another round of mass layoffs in the country.

[zynner]

Did you see what the home builder Toll Brothers (TOL) said today?

Terrible earnings, slowdown in building going forward, and the worst slowdown in 40 years on the horizon.

Not that I believe them -- CEO is a liar. But they're not the only one seeing a slowdown in new home construction.

I know someone in that industry and they are giving all sorts of incentives to unload properties. Those incentives do not show up in statistics of selling prices. So, prices are dropping more than statistics show. Mortgage companies also taking a beating.

Since 40% of all new job growth in the USA over the past 5 years was in the real estate industry, this is worse than just housing price drops.

Also, credit card usage up 10% last month. Not good.

Bear market.

~ zynner

[bishop]

*bump*


so much for this being a bear market, eh zynner? or, a short-lived rally for that matter...