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Thread: major market reversals today ... the 'beginning of the end' ?

  1. #1
    Banned Melonie's Avatar
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    Default major market reversals today ... the 'beginning of the end' ?

    As anybody who watches the financial news is already aware, the US stock markets took a huge dive today with tomorrow's index futures looking just as negative, the US dollar exchange rate has now fallen past 1.31 Euros, oil / natgas commodity prices are starting to rise rapidly in US$ terms ...

    All in all, the 'hot money' seems to be pulling out of US markets / US dollar. Where all of that 'hot money' is flowing instead is another question ... however gold and silver are starting to form solid uptrends again ! At any rate ...

    (snip)"Not the only one

    Needless to say, Hunt isn't alone in worrying about the home price bubble. To cite an extreme, economist Gary Schilling has gone on record expecting a 25 percent decline in housing prices. This would literally bankrupt millions of homeowners.

    You'll be glad to know that Lacy Hunt isn't expecting anything that extreme.

    What's worrisome is that other sources of economic strength don't look very promising to Hunt, either.

    How about foreign consumer demand?

    Not likely, he says.

    How about business investment and capital spending?

    Hunt, always the proper economist, doesn't say "fuhgeddaboutit" — but he might as well have.

    "With GDP slowing, it's very hard to believe capital spending will continue," he says.

    The bigger picture — the one beyond this economic cycle — is more positive. Hunt believes we have entered a new period of global markets and productivity. Like the long period from 1871 to 1930 — with major increases in agricultural, manufacturing and transportation productivity — we may be in a long period of low to nonexistent inflation. Back then, prices actually fell slightly every year. They averaged a 0.2 percent decline annually. Treasury yields averaged only 2.9 percent.

    So interest rates may fall further still.

    Unintended consequences
    Could something happen to throw a monkey wrench into this picture of benign deflation?

    "Yes," Hunt says. "We have to worry about the law of unintended consequences. If the new Congress raises the tax rates on investment income, it would put us in a bad position. We can't compete internationally on labor costs. So we've got to have strong capital investment. Raising the taxes on capital would take away our edge.""(snip)
    Last edited by Melonie; 11-27-2006 at 03:37 PM.

  2. #2
    Banned Melonie's Avatar
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    Default Re: major market reversals today ... the 'beginning of the end' ?

    with a follow-up from the venerable professor Roubini at

    "Recession Watch: A Few More Data Points and Analyses
    Nouriel Roubini | Nov 26, 2006

    Here are some news and analyses from the Thanksgiving weekend.

    - Wal-Mart Same-Store Sales Down 0.1% in November: Wal-Mart may be the canary in the coal mine for the US consumer.

    - Recession Risk Rising above 50% according to the Fed Yield Curve Model as discussed in a new study by the Federal Reserve of San Francisco

    - Recession: The Stage is Set says Richard Arvedlund, Founder, Cypress Capital Management in an interview with Barron.

    - Dollar Drops to 20-Month Low Against Euro on Speculation Growth Is Slowing

    - Foreclosures hit a new high in October

    - Web sales down on Black Friday

    - Beware: Heavy store traffic doesn't mean huge sales

    - Visa Sees Weakness in Department Stores, Apparel

    - Why the economy needs the consumer to shop this year: Amid Housing Slowdown,
    Spending Is Key to Growth; A Mixed Bag for Retailers

    So, what should we make of the preliminary (not final yet) data that Black Friday sales were up 6% relative to 2005? Data for one day are of limited value. Also, given the very aggressive discounting of some items (electronics especially) by some major retailers one would have expected a surge in demand given the special and temporary sales going on over the weekend. And some of the data on the Thanksgiving sales were mixed and worse than the 6% increase reported by the NRF: Wal-Mart sales were down in November; Visa is reporting lower sales in department stores over the Thanksgiving weekend; Web sales were also down.

    The issue is whether the surge in spending in one day is a signal of a persistent increase in spending over the holiday season or a signal of intertemporal shift forward of some holiday sales that will leave the rest of the holiday season weak. I read the evidence as consistent with the latter hypothesis based on the following facts:

    - 57% of consumers did not shop during the Thanksgiving weekend;

    - "fewer people shopped, with about 140 million visiting stores during the four days including Thanksgiving, down from 145 million last year";

    - consumers snapped only heavily discounted sales items and literally ignored all the rest: ``It was shocking because people were only buying doorbusters,'' said Davidowitz, chairman of Davidowitz & Associates. Employees with his New York-based consulting and investment-banking firm visited 50 retailers over the weekend. ``You can't have people just come in and buy doorbusters and leave.'';

    - the National Retail Federation said that sales during November and December may rise 5 percent relative to last year. But with CPI inflation hovering close to 4% y-o-y this represents only a 1% real increase in sales.

    And, as reported by Bloomberg, expect further bad news from the housing market this coming week: "The erosion of the nation's housing market extended into the fourth quarter, posing a risk that the weakness will permeate the rest of the U.S. economy"(snip)

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