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Post contributed courtesy of TheFlyOnTheWall.com (subscription required).
After evaluating corporate earnings and economic data, the one conclusion that investors can draw this week is that the U.S. Federal Reserve's 17 interest rate increases are taking hold and the U.S. economy is slowing. Consider that:
- Consumer prices dropped 0.5% last month, matching September's decline.
- Core inflation rose by just 0.1%, the smallest gain in eight months.
- Wholesale prices plunged by a record 1.6% in October.
- The Home Depot, Inc. (NYSE:HD), Circuit City Stores, Inc. (NYSE:CC) plus numerous other consumer-driven companies reported awful revenue growth, or no growth, for the quarter and suggested that in October conditions worsened, and did not improve.
Also, the slope of the yield curve is negative, with the Fed Funds rate at 5.25% versus 4.65% for the 10-year bond. This means cash is being drained from the banking system.
Hence, evidence is clearly building that the Fed will have to lower rates aggressively in the beginning of 2007.
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Reader Comments (Page 1 of 1)
11-17-2006 @ 5:52PM
Kevin Leo said...
The financial press is either running a game or really intellectually challenged:
Why is lower inflation and lower consumer spending bad now? Every year the press worries about high consumer spending and high inflation. Now with these metrics in reverse, it's a recession. This is insane!
Or is it? Seems to me that when it's time to kill the Bush economy "inflation" must be stopped with growth curbing higher rates--With Congress now in the ahnds of Democrats, "let's create the 'recession' mantra to win the White House in 2008". I guarantee it that Bernanke with not lower rates for the next 2 years (on false inflation speculation)--to keep his job and give a boost to Democrats. Watch for commodities market manipulation--again.
11-19-2006 @ 9:17AM
better returns said...
in re kevin leo: it is 5 and a half years past when the 'bush economy',as you call it should have been killed. it has been fueled by consumer debt and budget defecits. consumer spending is a very hard figure to interpret. it can be a yardstick of consumer confidence or it can be a sign of increasing debt. look back at bush's first $300 tax rebate. he didn't encourage taxpayers to save the money or to reduce their personal debt as any competent financial advisor would do. he encouraged them to spend it. that has been the theme of his administration. people can only spend so much to hold up a faulty plan. instead of blindly rubber-stamping everything this administration does, take a moment to familiarize yourself with the economic cycle. there are laws to economics much as there is in science and mathematics. they can only be manipulated so long before they exert their forces and return to their historical and natural order.