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Market Oracle FREE Newsletter

Analysis Topic: Economic Trends Analysis

The analysis published under this topic are as follows.

Economics

Tuesday, April 10, 2007

Leading Economic Indicator attacked for signaling sluggish GDP growth / Economics / US Economy

By: Paul_L_Kasriel

When The Facts Change, I Change My Model - What Do You Do?

On March 22, I published a commentary entitled" US Recession Imminent? Both the Leading Economic Indicators and the KRWI are Flashing Warning Signs ". The LEI refers to the index of Leading Economic Indicators published by the Conference Board. The KRWI (Kasriel Recession Warning Indicator) is something I happened on in my independent research.

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Economics

Tuesday, April 10, 2007

The US Economy: Is Manufacturing and the Yield Curve Signalling Recession? / Economics / Inverted Yield Curve

By: Gerard_Jackson

The US yield curve is giving a lot of economic commentators the jitters. The rule is that whenever the yield curve goes negative, i.e., short-term interest rates exceed long-term interest rates, a recession emerges some 12 to 18 months later. There was a great deal of hand-wringing in late 2005 when the yield turned negative. Recently the curve has started to flatten, with some commentators now predicting that it will once again go positive and give the US economy another spurt of growth.

The odd thing here is that the economic commentariat do not seem to realize that in a truly free market the yield curve would always tend to be flat. If a difference between long-term and short-term rates emerged then arbitrage would eliminate the difference. Say, for instance, short-term rates began to rise, then investors would desert long-term rates in favour of short-term rates. This would see short-term rates fall and long-term rates rise until the curve was flat.

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Economics

Tuesday, April 10, 2007

The Federal Reserve Monopoly over Money Supply / Economics / Money Supply

By: Dr_Ron_Paul

Recently I had the opportunity to question Federal Reserve Chairman Ben Bernanke when he appeared before the congressional Joint Economic committee. The topic that morning was the state of the American economy, and many of my colleagues raised questions about how the Fed might better "regulate" things to ease fears of an economic downturn. The tenor of my colleagues' questions suggested that Mr. Bernanke's job is nothing less than to run the U.S. economy, like some kind of Soviet central planner.

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Economics

Saturday, April 07, 2007

The US Economy financed by debt and excessive speculation - Cliff-Risk Nation / Economics / US Economy

By: Michael_J_Panzner

In the credit derivatives market, certain instruments are exposed to what is known as "cliff risk." This ominous sounding phrase describes a situation where the last in a series of adverse developments obliterates the value of what was only recently viewed as a triple-A-rated security. Up until that point, however, rating agencies, investors, and bankers assume that circumstances will eventually right themselves and that the principal will be paid in full, in spite of whatever bad news might have come along beforehand.

This latter way of thinking is not confined to the nether world of complex securities with tongue-twisting names like CDOs-squared. In many respects, it describes a point-of-view that permeates many aspects of modern financial life. Increasingly, Americans have taken it for granted that good times beget more of the same and they have acted accordingly. If bad news comes along, the damage is absorbed. Unlike with some toxic derivatives, however, many believe that if circumstances do manage to take a turn for the worse, something can always be done about it.

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Economics

Thursday, April 05, 2007

US Economy - No More Legs to Stand On / Economics / UK Interest Rates

By: Peter_Schiff

As investors and market strategists sift through every new economic tea leaf for clues about the health of the U.S. economy, I am reminded of a group of railroad engineers discussing the structural qualities of the track bed while an overloaded fright train careens around a sharp turn. For those not lost in the inconsequential minutia, a severe recession is an outright certainty, regardless of what current statistics might indicate on a day-to-day basis.

Since the bursting of the dot.com bubble, the U.S. economy has been fueled by an enormous consumer spending spree. This largess has been artificially propped up by the largest real estate bubble in U.S. history. In fact, housing has acted as a three-legged stool upon which American consumers have been precariously perched. Those legs are: 1) home equity extractions; 2) adjustable rate mortgages; 3) the wealth effect.

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Economics

Thursday, April 05, 2007

Risk of Stagflation - Key Charts and Major Clues / Economics / Gold & Silver

By: Jim_Willie_CB

Some extremely important charts follow, each with an equally important message. The story can be told from a series of painted pictures. The USEconomy is in deep trouble. The US Federal Reserve is caught in a box. Bankers are one step from being snared in a quagmire, with vivid memories of the insolvent bank system endured by Japan for over a full decade.

The US bank problems seem worse by comparison, when factoring in mortgages, huge spread trades sure to go bad, a mountain of credit derivatives growing at 80% annually in size, and a raft of collateralized debt obligations sitting like an ominous cloud. The Bank of Japan simply cannot continue with rate hikes, given the vulnerable shaky state of all matters financial on a global basis. Gold and silver are moving to center stage, undeterred by the recent shock waves. The main shock is to the Powers That Be (King Henry & His Court of Market Manipulators), who are losing grip at the helm. A wider war, surely beneficial for many private interests, would kill the future economic prospects.

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Economics

Tuesday, April 03, 2007

Financial Markets - Time to Pay Attention, China Trade War, Housing, Iran and more / Economics / US Economy

By: Dr_Martenson

There's so much happening in the markets both financially and geopolitically, that I hardly know where to begin.

Probably the most shocking news of the week was not the tension in the Middle East around Iran. No, as disturbing as is the possibility of another shooting war in immediate proximity to 25% of the world's daily oil shipments, the reality of a trade war with China announced on Friday (March 30 th , 2007) was even more disturbing:

The Bush administration, facing heavy pressure to deal with soaring trade deficits, will impose economic sanctions against China as a way of protecting American paper producers from unfair Chinese government subsidies, a Commerce Department official said Friday.

The action will reverse 20 years of U.S.trade policy by treating China, which is classified as a nonmarket economy, in the same way that other U.S. trading partners are treated in disputes involving government subsidies.

The decision was to be announced by Commerce Secretary Carlos Gutierrez. Department official said Friday.

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Economics

Monday, April 02, 2007

The Dynamics of Deflation - The Golden Thorn in the Flesh - Part 1 / Economics / Deflation

By: Professor_Emeritus

Soldiers throwing away ammunition before combat - The guessing game among gold market analysts is still on: will central banks resume gold dumping or won't they, as the price of gold takes another shot at $700? In arguing the case pro and con, virtually all analysts miss one important point. Central bank sales of gold against the backdrop of deflation looming in the horizon is akin to soldiers throwing away ammunition just before combat. They should be doing the exact opposite. Soldiers should replenish their supply of ammunition. Central banks should reinforce their balance sheets by purchasing gold (as indeed several important ones, including those of China and Russia, are on record of doing).

This is the only way to keep the powder dry. In a deflation it may be necessary to inject massive amounts of new credit into the system, but the only way to make the national currency more plentiful without weakening it (let alone destroying it) is through gold purchases. They are by far the most effective weapon of a central bank to combat deflation. Are we to assume that our central bankers are dummies who do not know this piece of elementary truth?

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Economics

Saturday, March 31, 2007

The Root Cause Of Unemployment Part 2: Real Bills of Exchange and Employment / Economics / Money Supply

By: Professor_Emeritus

A REVISIONIST THEORY AND HISTORY OF MONEY

In Part I we elaborated on the thesis of the German economist Heinrich Rittershausen that the appalling world-wide unemployment of the 1930's was caused by the coercive legal tender laws of 1909. The chain of causation is as follows: the French and German governments, in preparation for the coming war, wanted to concentrate gold in their own coffers. They stopped paying civil servants in gold coin. To make this practice legal they had to enact legislation that gave bank notes legal tender status.

Scarcely did these governments realize that in doing so they set a slow process into motion which, in the end, destroyed the wage fund out of which workers could be paid even before merchandise has been sold to the ultimate consumer. In this second part we examine in greater detail how the wage fund was financed before 1909. We shall see that the bill market is just the clearing system of the gold standard. If disabled, sooner or later the gold standard will collapse as a result.

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Economics

Saturday, March 31, 2007

How the Fed Lost Control of Money Supply / Economics / Money Supply

By: Axel_Merk

The world is awash in money. This money has flown into all asset classes, from stocks to bonds, from real estate to commodities. In a world priced for perfection, should we enjoy the boom or prepare for a bust? Let us listen to Wall Street's adage and "follow the money."

After the tech bubble burst in 2000, policy makers in the U.S. and Asia set a train in motion they have now lost control over. In an effort to preserve U.S. consumer spending, the Federal Reserve (Fed) lowered interest rates; the Administration lowered taxes; and Asian policymakers kept their currencies artificially weak to subsidize exports to American consumers.

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Economics

Saturday, March 31, 2007

A Random Walk Down The Path of Asset Price Deflation / Economics / Deflation

By: Steve_Moyer

One of the nice things about our series of Safehaven articles on Asset Deflation is that we have been on such a tiny island compared to the "All Markets Will Continue To Rise Forever and Ever Amen Because It Is Our Birthright And The Fed Will Surely Guarantee It" set, our small legion of open-minded and perceptive readers write in with increasing frequency and say things like, "Yo, Steve, isn't it time for another deflation update?"

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Economics

Friday, March 30, 2007

February Personal Consumption Expenditures (PCE) Increases Inflation Risks / Economics / Inflation

By: Paul_L_Kasriel

In real terms, February Personal Consumption Expenditures (PCE) increased by 0.2% after January's 0.3% rise. It was a 0.5% increase in real service sector spending that yielded a positive change on overall real PCE. Real durable goods expenditures fell 0.1% and real nondurable goods expenditures fell 0.4%.

Real PCE services increased 0.5%, fueled by a 9.5% rise in expenditures for household utilities (electricity and gas). As you may recall, February was considerably colder than usual. In fact, in terms of heating degree days, February 2007 was the coldest February since that of 1979. March warmed up.

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Economics

Friday, March 30, 2007

US Economy, Bernanke's Big Battle with Stagflation / Economics / Inflation

By: Money_and_Markets

Mike Larson writes : Last week, I told you that our Federal Reserve Board Chairman was reaching for his “Bernanke put.” But today I want to talk about the major forces opposing his efforts.

In a nutshell, the Fed played too fast and too loose with monetary policy for too long. That allowed inflation to seep into virtually every corner of the U.S. economy and its capital and commodity markets.

At the same time, economic growth is slowing sharply due to the spreading impact of the housing and mortgage meltdown. I'll share some figures with you in a minute. Suffice it to say, they don't look good.

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Economics

Thursday, March 29, 2007

How Blind can they be? Poor state of the US Economy and Housing Slump being ignored / Economics / Credit Crunch

By: Peter_Schiff

As our phony economy begins to unravel before our eyes, it is amazing how few people can actually see it. The collective wisdom of stock market pundits, economists, and Federal Reserve officials gives the impression that everything is just fine.

Although some acknowledge that housing is slowing down a bit, that there are isolated problems with subprime mortgages, and that inflation is not moderating as quickly as they hoped it would (let's ignore surging oil prices), few can see any grave threats to continued economic expansion, or the bull market in stocks, bonds or real estate. 

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Economics

Thursday, March 29, 2007

Asset Deflation : The Death of Real Estate / Economics / Deflation

By: Steve_Moyer

"I had a stick of CareFree gum, but it didn't work. I felt pretty good while I was blowing that bubble, but as soon as the gum lost its flavor, I was back to pondering my mortality." ~ Mitch Hedberg

I sell investment real estate in the San Francisco Bay Area. Have been for 25 years. It's a nice business. I've enjoyed it, and I value my clients.

My pappy's a realtor. My grandpappy was a realtor. My uncle's a realtor; so is my brother. Heck, some of my best friends are realtors (and it takes a big man to admit that).

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Economics

Thursday, March 29, 2007

Fed Jeopardizes US Dollar as it Neglects its Mandate / Economics / US Dollar

By: Axel_Merk

The U.S. dollar collapsed to two-year lows against the euro as the Federal Reserve (Fed) takes its focus away from fighting inflation. The Fed has a dual mandate: price stability as well as full employment. With unemployment hovering near historic lows, why does the Fed neglect its mandate to fight inflation, thereby jeopardizing the dollar?

Inflation has been creeping up throughout the economy, now showing up even in the "core inflation" statistics the Fed pays particular attention to. At the same time, the signs of an economic slowdown become ever more apparent. Fighting a slowing economy versus fighting rising inflation require diametrically opposed monetary policies. Given the low unemployment rate, rather serious reasons must exist for the Fed to deviate from its mandate to fight inflation. It is the Fed's role to take away the punchbowl when excesses are created in the economy. Over the past decade, the Fed has lost focus of its mission, blinded by misunderstood dynamics introduced by the internet and globalization. Let us examine why the Fed is shifting its focus to growth.

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Economics

Wednesday, March 28, 2007

Bernanke's JEC Testimony - Fed Still Worried Most About Inflation, However ... / Economics / US Economy

By: Paul_L_Kasriel

Am I missing something? Has not the FOMC marginally moved toward - not all the way to - an agnostic position with regard to its next likely directional change in the federal funds rate? That's what I took away from Fed Chairman Bernanke's JEC testimony and Q & A today. Yes, the FOMC still sees higher inflation as the "predominant policy concern ...[h]owever, the uncertainties around the outlook have increased somewhat in recent weeks."

One of those uncertainties has to do with business capital spending. To wit, "the magnitude of the slowdown [in business equipment and software expenditures] has been somewhat greater than would be expected given the normal evolution of the business cycle."

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Economics

Wednesday, March 28, 2007

Learning Curves - Yield Curve turns Positive, Recession ? / Economics / US Economy

By: Brady_Willett

Yesterday CBS's Mark Hulbert attacked bearish 'advisors' that neglected to announce that the U.S. yield curve was no longer inverted. Apparently Mr. Hulbert believes that those who pointed out that recession usually follows a curve inversion should have immediately ratcheted down their recession odds because the curve told them to do so.

"I'd be a very poor man if my wealth were dependent on getting a dollar for every one of those advisers who, since late last week, has even acknowledged that the yield curve has become positive again - much less conceded that, by the logic of their previous argument, a recession has become less likely.

It just goes to show how difficult it is to be truly objective in this business."

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Economics

Thursday, March 22, 2007

US Recession Imminent? Both the Leading Economic Indicators and the KRWI are Flashing Warning Signs / Economics / US Economy

By: Paul_L_Kasriel

Today the Conference Board reported that its index of Leading Economic Indicators (LEI) for February declined by 0.5% on the heel's of January's downwardly revised 0.3% drop. The January-February LEI average is down 0.49% from its Q1:2006 average. If the January and February levels of the LEI are not changed after revisions, then in order for the first quarter's LEI average to equal that of Q1:2006, the March LEI would have to increase 1.7%.

The last time the month-to-month increase in the LEI even approached this magnitude was back in March 2004, when it increased 1.4%. So, as of right now, the odds favor the first quarterly average year-over-year contraction in the LEI of this current economic expansion.

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Economics

Thursday, March 22, 2007

UK: Interest Rate Hike Expectations Ease But Don't Rule Out Further Tightening / Economics / UK Interest Rates

By: Victoria_Marklew

The minutes of the March 8 meeting of the Bank of England's (BoE) Monetary Policy Committee (MPC) have caught the markets by surprise, with an unexpectedly-dovish 8-1 vote to leave rates on hold, and the one dissenter a vote for a rate cut. The members noted that "the upside risk to inflation from wage growth might have started to diminish," and "financial market volatility added to the case for holding rates." So, can we assume that the current 5.25% repo rate is the peak? Not yet.

Yesterday came the news that the EU-harmonized rate of inflation , HICP, hit 2.8% in February, up from 2.7% in January - still far above the BoE's 2.0% medium-term target. The Retail Prices Index (RPI), the basis for most wage negotiations, climbed to a 16-year high of 4.6%.

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