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Too Early for US Recession ?

News_Letter / Financial Markets Feb 04, 2008 - 12:01 AM GMT

By: Nadeem_Walayat

News_Letter Best Financial Markets Analysis ArticleFridays Jobs report of 17000 job losses in January had many commentators declaring that the US is now in recession. However technically a recession cannot be declared until June 08 following 2 quarters of negative growth. Therefore it is far too early with many more months of central bank action ahead of us to declare a US recession.


The Market Oracle Newsletter
February 4th , 2008            Issue #6 Vol. 2


Dear Registered Member,

Fridays Jobs report of 17000 job losses in January had many commentators declaring that the US is now in recession. However technically a recession cannot be declared until June 08 following 2 quarters of negative growth. Therefore it is far too early with many more months of central bank action ahead of us to declare a US recession.

US cut interest rates by 0.5% bringing rates down by 1.25% in one month, one of the largest monthly cuts in history. the UK is expected to follow suit this week with a more measured 0.25% cut to 5.25% on route towards the Market Oracle target 4.75% by September 2008.

The US central bank and government are determined to avoid a recession during an election year, with money supply running at 16% , and checks of $1200 being sent out to families to spend with more likely to follow later in the year they may just achieve it !

In the UK, credit card provider Egg cracked as the bank short of money market cash withdrew credit accounts from 150,000 of its customers that it deemed to be at the highest risk of default as the credit crisis spreads.

The stock markets continued their relief rally, UK's FTSE surged above 6000 on Friday taking the market up 11% from its 6400 low and the Dow Jones up 9%.

The strength of the stock market rally bodes well for the anticipated retest of the January lows, as the stronger the market is before the retest, the weaker will be the subsequent decline and therefore would set the scene for a strong stock market for much of the rest of the year.

Gold bugs are fixated by $1000, whereas it is more likely gold is heading below $850 for a near term correction. However long-term prospects for the precious metal looks good on the back of further deep cuts in US interest rates that will push the dollar lower and commodities higher. Other FIAT currencies such as the British Pound and Euro will follow suit with a devaluation of their currencies so as to track the dollar lower, which is reflected in the strong money supply growths of over 10% that imply future inflation.

US election politics cleared the field for 3 contenders ahead of super Tuesday - John McCain stands heads and shoulders above the other republican candidates. On the Democratic side - Hillary Clinton has a slight edge over Barack Obama, but it is too close to call and may remain so even after Super Tuesday.

That’s a wrap for this weeks newsletter intro.

Nadeem Walayat,
Editor of The Market Oracle

In This Issue
  1. Aluminum and Natural Gas - the Next Commodities to Boom?
  2. Looking Past the Current Stock Market Crisis for Strong Financial's
  3. US in Recession - Rising Unemployment and Slowing Consumer Spending
  4. Invest in Commodities, Don't Lose Your Capital in the Stocks Secular Bear Market
  5. Stock Market Investment Buying Opportunity of a Lifetime!
  6. US and European Economies Heading for Depression 2.0
  7. Gold $1000 by June 2008 As Fiat Currencies Race to the Bottom
  8. PANDEMONIUM! - US Financial Markets in Uproar After Fed Loses All Traction
  9. US Fed Printing Money to Avoid Immediate Banking Collapse = Higher Long-term Rates
  10. Iran's Notice to Crude Oil Importers Results in Monetary Contraction of $500 billion of PetroDollar Reserves
1. Aluminum and Natural Gas - the Next Commodities to Boom?

By: Elliot_H_Gue

Oil prices are up nearly 50 percent over the past year; crude prices accelerated at the end of 2007 as inventories tightened globally. Meanwhile, wheat prices are up more than 100 percent over the same time period amid strong growth in demand from the developing world, ultra-low stocks in some countries and, of course, a boom in biofuels demand powered by government subsidies.

Although wheat isn't an important feedstock for making ethanol, all agricultural commodities are affected by the biofuels boom. The reason is simply that farmers are diverting acres to corn production in an effort to capture sky-high corn prices.

Read Article

2. Looking Past the Current Stock Market Crisis for Strong Financial's

By: Roger_Conrad

The news keeps getting more disturbing for America's financial system.

Just minutes after the US Federal Reserve slashed rates by half a point this week, the market turned its focus to an announcement by Fitch that it was slashing ratings of major bond insurance group Financial Guaranty Insurance Company (FGIC), triggering fears that it had others in its sights as well. That was compounded by the horrific fourth quarter earnings turned in by rival insurer MBIA, which was forced to defend itself against rumors that it could be headed toward insolvency.

Read Article

3. US in Recession - Rising Unemployment and Slowing Consumer Spending

By: John_Mauldin

  • What Does a Recession Look Like?
  • The Starbucks Index
  • Consumer Spending Slows Down
  • Rising Unemployment Starts to Show Up
  • It is All About Valuations
  • Phoenix, Prime Rib and My Conference

What does a recession look like? How does it feel? What does it mean for your life and your investments? We explore these questions and more in this week's letter. I have been working on this letter all week, and think you will find it interesting.

Read Article

4. Invest in Commodities, Don't Lose Your Capital in the Stocks Secular Bear Market

By: Zeal_LLC

The financial markets are always exhilarating. And as a student of the markets, I've learned over the years that their dynamics leave no room for boredom. Whether bull, bear, or monotonous grind in either direction, there is always something new and exciting going on.

Astute investors and speculators are able to make money no matter what direction the markets are moving. But for the average investor, it is usually live by the bull and die by the bear. And for those investors positioned to grow their capital in headline stock indices, in flat or down-trending markets there is wailing and gnashing of teeth.

Read Article

5. Stock Market Investment Buying Opportunity of a Lifetime!

By: Money_and_Markets

Larry Edelson writes: No, I'm not talking about U.S. stocks! Despite yesterday's half point rate cut from the Fed, my stance on the U.S. economy and stock market has not changed. And I hope you've listened to my suggestion to shed most of your U.S. stocks, with the exception of select gold miners and natural resource plays.

But what about China? China's stock market has fallen as much as 32% since its recent peak, begging the questions ...

Read Article

6. US and European Economies Heading for Depression 2.0

Christopher_Laird

Depression 1.0 started about 1929 and ended around 1940 with the entry of the US into WW2. Even then, many economists say that, had the US not entered WW2, the depression would have continued for years in the US, and the rest of the world.

Now, since WW2, the US and West entered a period of unparalleled post war prosperity. This resulted in an incredible rise in the standard of living in the US and West. People don't realize, but much of the US didn't even have electricity in the 1920's!

Read Article

7. Gold $1000 by June 2008 As Fiat Currencies Race to the Bottom

By: Jim_Willie_CB

Quick Note: My math was done last week on a dirty napkin. The ‘AAA' index on credit default swaps for mortgage bonds perhaps is not indicative of prime mortgages, my error in pasted title for the graphic. Mea culpa! The index contains a mix of subprime slime slices in tranches, for some odd reason. Also, those high quality indexes are actually time stamped, with the most recent being the hardest hit. They contain the immediate decline in recent housing prices, the most recent defaults, without benefit of some home collateral appreciation. My attitude is firm though, that the swap contracts of age one year will lose a similar amount, like 30%. Give them time. Ditto for the swap indexes of age two years. The recent mortgage indexes are excellent forward indicators for the older ones.

Read Article

8. PANDEMONIUM! - US Financial Markets in Uproar After Fed Loses All Traction

By: Alex_Wallenwein

From Merriam Webster's Online Dictionary: Pandemonium. noun; Etymology: New Latin, from Greek pan- + daimo-n evil spirit — more at demon . Date: 1667. 1: the capital of Hell in Milton's "Paradise Lost." 2: the infernal regions: hell . 3: not capitalized : a wild uproar : tumult .

On Wednesday January 30, 2008, the last stops to a total collapse of the US financial structure were pulled out. The elevator cable is now cut, with the elevator carriage at the 45th floor of a 50-floor skyscraper. If you believe you can "jump" to avoid getting crushed when the carriage hits the concrete floor below - good luck!

Read Article

9. US Fed Printing Money to Avoid Immediate Banking Collapse = Higher Long-term Rates

By: Christopher_Laird

Two Billionaires Describe Our Outlook - Financial speculator and billionaire, George Soros states in his FT.com commentary : “the current crisis is the culmination of a super-boom that has lasted for more than 60 years.” In June's Higher Rates Reflect Default Risk we described the end of the last credit boom: “In 1928, the U.S. Treasury Bond similarly broke out of the channel and rose to a higher yield. This coincided with the end of ‘easy' money which forced the deleveraging of the economy and concluded with the financial crisis of 1929-1932.” Compare the two Treasury Bond Yield charts below. In 2005-2006 higher bond rates “broke out of the channel” and inflicted damage on the housing market. This marked “the end of ‘easy' money.” Similarly since 2006, there has also been a flight to quality.

Read Article

10. Iran's Notice to Crude Oil Importers Results in Monetary Contraction of $500 billion of PetroDollar Reserves

By: Rob_Kirby

Much was made of Iran's announcement back in December, 2007 – that they would no longer be accepting U.S. Dollars as payment for their chief export, crude oil:

Iran stops selling oil in dollars - Tehran moves closer to confrontation with U.S.

Read Article

 

For more indepth analysis on the financial markets make sure to visit the Market Oracle on a regular basis.

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