Tuesday, July 11, 2006
Important Economic Information
If reading about the overall direction of the economy (and
the cyclical effect it has on real estate) bores you, then
skip this posting.
If not, well...read on....
------------------------
Adrian Van Eck's Hotline on Money and the Economy
For: Friday, July 7, 2006
VanEckTillman.com.
A KEY FEDERAL RESERVE GOVERNOR SAID THIS WEEK THAT THE
FED IS AWARE OF THE RISK OF THEIR OVERDOING IT WHEN IT
COMES TO THE FED FUNDS RATE.
THIS SHOWS A LEVEL OF AWARENESS SINCE DR. BEN BERNANKE
TOOK OVER AS FED CHAIRMAN FAR GREATER THAN EXISTED DURING
THE FIVE TERMS OF CHAIRMAN ALAN GREENSPAN.
HE ROUTINELY OVERSTAYED WITH A STRING OF RATE HIKES, LARGELY
BECAUSE HE SEEMED TO BE PERSONALLY OBLIVIOUS TO TIMELY CLUES
THAT THE ECONOMY HAD ALREADY BEGUN REACTING TO PREVIOUS RATE
BOOSTS.
THAT IS WHY HE GAVE US TWO OF THE WORST RECESSIONS SINCE
WORLD WAR II, AND WHY HE WAS FORCED TO QUICKLY REVERSE COURSE
AND PUMP MASSIVE QUANTITIES OF MONEY INTO THE U.S. ECONOMY,
LEADING TO BURSTS OF INFLATION.
HIS POOR SKILLS IN READING THE ECONOMY WERE DIRECTLY LINKED
TO THE VIOLENT UP AND DOWN SWINGS IN THE ECONOMY, AS OPPOSED
TO THE FED'S MANDATE TO SMOOTH OUT SUCH SWINGS.
BERNANKE, ON THE OTHER HAND, IS AWARE OF HOW EASILY POOR MONEY
MANAGEMENT AT THE FED DROPPED AMERICA INTO TWO DESTRUCTIVE
DEPRESSIONS - THE FORGOTTEN BRIEF ONE AFTER WORLD WAR I AND
THE MUCH BIGGER ONE THAT LASTED ALL THROUGH THE 1930'S.
HE SLOWED MONEY GROWTH AFTER HE TOOK OFFICE TO KNOCK DOWN
SPECULATIVE MADNESS IN HOUSING, BUT HAS SINCE RESUMED THE
KIND OF MONEY EXPANSION NECESSARY TO FUND STRONG GROWTH IN
THE U.S. ECONOMY.
THIS WEEK THEY ANNOUNCED ANOTHER $10 BILLON GAIN IN M2 MONEY
SUPPLY, PUSHING THE TWO-WEEK GAIN ABOVE $30 BILLION.
THAT MEANS MONEY GROWTH IS AGAIN RUNNING AT A RATE APPROACHING
ONE TRILLION DOLLARS A YEAR.
WALL STREET CHOOSES TO IGNORE THIS FACT, WHICH STRONGLY POINTS
TO A POWERFUL NEW GROWTH TREND IN THE SECOND HALF OF THIS ELECTION YEAR.
Instead, a handful of loud-mouth gloom and doomers makes an
effort each morning to scare the markets into a bearish decline.
That happened again Friday morning. Their excuse was that wages
had gone up 3.9% in the past year.
They jumped to the erroneous conclusion that this would force
the Fed to raise the federal funds rate another quarter point
at the August meeting of the Open Market Committee.
Lost in the swirl of selling and short-selling that followed
were the announcements by the government that worker productivity
had been rising at one of the fastest rates in history and that
the Fed itself feels this productivity gain offsets the raises.
I am sorry that the market's obsession with the pay raises has
clouded its collective mind and kept it from studying the actual
payroll data issued Friday morning.
The count of new jobs (a mild 121,000) was well below the
predictions of up to 350,000 that drove the market down earlier
in the week.
Economists looking at the payroll data projected a GDP growth
rate of 3.0% for the third quarter.
Three percent is exactly the growth rate called for by two
Federal laws, starting with the post-World War II Full Employment Act,
which demanded that the Fed avoid America falling back into a Depression,
such as had existed prior to the war.
For my part, I fully expect GDP growth to surprise on the upside
as we move toward the November elections and very likely the year
after that.
There are a number of crosscurrents that have shown up in the
past few days.
Take, for example, the 18,000 recent new hires in American
manufacturing. This number came as a surprise to Wall Street.
That is because they are completely hung up on numbers reported
by the Institute of Supply Management.
Once upon a time their data was reliable.
But then their big business members - which is where most of
the data comes from - began moving production and orders overseas.
As they have done so, we tend to see the ISM reporting lower
order backlogs for manufacturing and slower current manufacturing
growth.
Increasingly their numbers are out of line with the data reported
by the Federal Government. That is because the U.S. Bureau of Labor
Statistics deals only with American factories.
You have seen, I am sure, that retail sales have been cooling in
America. Wal-Mart has dropped from its previous sales growth
range up near 5% a year to a number just above 1%.
They are blaming it on the price of gasoline, which allegedly
is keeping many of its customers from driving to a Wal-Mart store.
But I think there is something else going on here.
People have begun thinking more about paying down bills, charge
cards and loans and getting their personal finances in better order.
This is partly due to all of the Wall Street hype about how sales
and hiring will be cooling and more people will be jobless.
THE IRONY IS THAT WAL-MART AND MANY OTHER RETAILERS IMPORT MUCH
OF THEIR PRODUCT SELECTION FROM CHINA.
SO IT IS CHINESE-BASED FACTORIES, INCLUDING THOSE OWNED IN
PART OR TOTAL BY AMERICAN BIG BUSINESS, THAT ARE SUFFERING
LOSSES IN REVENUES.
MEANWHILE, INVESTMENT IN NEW FACTORIES IN AMERICA HAS BEEN
CLIMBING AT A BLISTERING PACE. SOME OF THIS CAN BE ATTRIBUTED
TO JAPANESE FIRMS THAT ARE SETTING UP FACTORIES HERE TO SERVICE
NOT ONLY AMERICA BUT ALSO OTHER NATIONS.
AS THE U.S. DOLLAR RESUMES ITS BEAR CYCLE DECLINE, SOMETHING
URGED BY MANY INDUSTRIAL NATIONS, MADE-IN-USA PRODUCTS ARE GETTING
CHEAPER AROUND THE WORLD.
THAT HELPS EXPLAIN THE 18,000 NEW JOBS CREATED IN AMERICAN
MANUFACTURING THIS PAST MONTH.
And by the way this is causing demand for American-made machinery
to surge. All this points, I believe, to a not-anticipated new
American boom that will shock the world and catch investors
by surprise. More next week.
Adrian Van Eck.
the cyclical effect it has on real estate) bores you, then
skip this posting.
If not, well...read on....
------------------------
Adrian Van Eck's Hotline on Money and the Economy
For: Friday, July 7, 2006
VanEckTillman.com.
A KEY FEDERAL RESERVE GOVERNOR SAID THIS WEEK THAT THE
FED IS AWARE OF THE RISK OF THEIR OVERDOING IT WHEN IT
COMES TO THE FED FUNDS RATE.
THIS SHOWS A LEVEL OF AWARENESS SINCE DR. BEN BERNANKE
TOOK OVER AS FED CHAIRMAN FAR GREATER THAN EXISTED DURING
THE FIVE TERMS OF CHAIRMAN ALAN GREENSPAN.
HE ROUTINELY OVERSTAYED WITH A STRING OF RATE HIKES, LARGELY
BECAUSE HE SEEMED TO BE PERSONALLY OBLIVIOUS TO TIMELY CLUES
THAT THE ECONOMY HAD ALREADY BEGUN REACTING TO PREVIOUS RATE
BOOSTS.
THAT IS WHY HE GAVE US TWO OF THE WORST RECESSIONS SINCE
WORLD WAR II, AND WHY HE WAS FORCED TO QUICKLY REVERSE COURSE
AND PUMP MASSIVE QUANTITIES OF MONEY INTO THE U.S. ECONOMY,
LEADING TO BURSTS OF INFLATION.
HIS POOR SKILLS IN READING THE ECONOMY WERE DIRECTLY LINKED
TO THE VIOLENT UP AND DOWN SWINGS IN THE ECONOMY, AS OPPOSED
TO THE FED'S MANDATE TO SMOOTH OUT SUCH SWINGS.
BERNANKE, ON THE OTHER HAND, IS AWARE OF HOW EASILY POOR MONEY
MANAGEMENT AT THE FED DROPPED AMERICA INTO TWO DESTRUCTIVE
DEPRESSIONS - THE FORGOTTEN BRIEF ONE AFTER WORLD WAR I AND
THE MUCH BIGGER ONE THAT LASTED ALL THROUGH THE 1930'S.
HE SLOWED MONEY GROWTH AFTER HE TOOK OFFICE TO KNOCK DOWN
SPECULATIVE MADNESS IN HOUSING, BUT HAS SINCE RESUMED THE
KIND OF MONEY EXPANSION NECESSARY TO FUND STRONG GROWTH IN
THE U.S. ECONOMY.
THIS WEEK THEY ANNOUNCED ANOTHER $10 BILLON GAIN IN M2 MONEY
SUPPLY, PUSHING THE TWO-WEEK GAIN ABOVE $30 BILLION.
THAT MEANS MONEY GROWTH IS AGAIN RUNNING AT A RATE APPROACHING
ONE TRILLION DOLLARS A YEAR.
WALL STREET CHOOSES TO IGNORE THIS FACT, WHICH STRONGLY POINTS
TO A POWERFUL NEW GROWTH TREND IN THE SECOND HALF OF THIS ELECTION YEAR.
Instead, a handful of loud-mouth gloom and doomers makes an
effort each morning to scare the markets into a bearish decline.
That happened again Friday morning. Their excuse was that wages
had gone up 3.9% in the past year.
They jumped to the erroneous conclusion that this would force
the Fed to raise the federal funds rate another quarter point
at the August meeting of the Open Market Committee.
Lost in the swirl of selling and short-selling that followed
were the announcements by the government that worker productivity
had been rising at one of the fastest rates in history and that
the Fed itself feels this productivity gain offsets the raises.
I am sorry that the market's obsession with the pay raises has
clouded its collective mind and kept it from studying the actual
payroll data issued Friday morning.
The count of new jobs (a mild 121,000) was well below the
predictions of up to 350,000 that drove the market down earlier
in the week.
Economists looking at the payroll data projected a GDP growth
rate of 3.0% for the third quarter.
Three percent is exactly the growth rate called for by two
Federal laws, starting with the post-World War II Full Employment Act,
which demanded that the Fed avoid America falling back into a Depression,
such as had existed prior to the war.
For my part, I fully expect GDP growth to surprise on the upside
as we move toward the November elections and very likely the year
after that.
There are a number of crosscurrents that have shown up in the
past few days.
Take, for example, the 18,000 recent new hires in American
manufacturing. This number came as a surprise to Wall Street.
That is because they are completely hung up on numbers reported
by the Institute of Supply Management.
Once upon a time their data was reliable.
But then their big business members - which is where most of
the data comes from - began moving production and orders overseas.
As they have done so, we tend to see the ISM reporting lower
order backlogs for manufacturing and slower current manufacturing
growth.
Increasingly their numbers are out of line with the data reported
by the Federal Government. That is because the U.S. Bureau of Labor
Statistics deals only with American factories.
You have seen, I am sure, that retail sales have been cooling in
America. Wal-Mart has dropped from its previous sales growth
range up near 5% a year to a number just above 1%.
They are blaming it on the price of gasoline, which allegedly
is keeping many of its customers from driving to a Wal-Mart store.
But I think there is something else going on here.
People have begun thinking more about paying down bills, charge
cards and loans and getting their personal finances in better order.
This is partly due to all of the Wall Street hype about how sales
and hiring will be cooling and more people will be jobless.
THE IRONY IS THAT WAL-MART AND MANY OTHER RETAILERS IMPORT MUCH
OF THEIR PRODUCT SELECTION FROM CHINA.
SO IT IS CHINESE-BASED FACTORIES, INCLUDING THOSE OWNED IN
PART OR TOTAL BY AMERICAN BIG BUSINESS, THAT ARE SUFFERING
LOSSES IN REVENUES.
MEANWHILE, INVESTMENT IN NEW FACTORIES IN AMERICA HAS BEEN
CLIMBING AT A BLISTERING PACE. SOME OF THIS CAN BE ATTRIBUTED
TO JAPANESE FIRMS THAT ARE SETTING UP FACTORIES HERE TO SERVICE
NOT ONLY AMERICA BUT ALSO OTHER NATIONS.
AS THE U.S. DOLLAR RESUMES ITS BEAR CYCLE DECLINE, SOMETHING
URGED BY MANY INDUSTRIAL NATIONS, MADE-IN-USA PRODUCTS ARE GETTING
CHEAPER AROUND THE WORLD.
THAT HELPS EXPLAIN THE 18,000 NEW JOBS CREATED IN AMERICAN
MANUFACTURING THIS PAST MONTH.
And by the way this is causing demand for American-made machinery
to surge. All this points, I believe, to a not-anticipated new
American boom that will shock the world and catch investors
by surprise. More next week.
Adrian Van Eck.
