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Conflicting currents roiling economies
October 25, 2006 (Jacqueline Thorpe, Financial Post)
More rate hikes possible
In the confusion that is typical when supertanker economies turn, we are back to contemplating the possibility of further interest rate hikes from the Fed.
Wall Street is convinced chairman Ben Bernanke will hold rates steady at 5.25% today, but speculation is brewing the U.S. Federal Reserve's tightening cycle may not be over yet.
It seems like only a nanosecond since both stock and bond markets were surging amid speculation the Fed would ride to the rescue of an imploding housing market as early as the first quarter of 2007.
While stock markets continue to fantasize -- the Dow Jones industrial average hit a record high yesterday -- bonds have sobered up.
The yield on the 10-year U.S. treasury note has risen about 30 basis points to 4.8% in a month. National Bank of Canada notes interest rate futures have gone from pricing in a 45% chance of a rate cut at the January Fed meeting to a 25% possibility now.
Foreign exchange players, meanwhile, have built up a US$8.1-billion net long position on the greenback, the highest since November, 2005.
AntiSpin: Lots of contradictory and incorrect data, as expected. Part of iTulip's prediction on Period X (aka the disinflationary to the inflationary transition in the Ka-Poom cycle), is that as in the early 1930s, the economy and financial systems have fundamentally changed since the last major crisis; the data will be largely comprised of inaccurate measurements of changes going on in the economy and financial markets that are no longer as relevant as in previous transitions, the data will show bewildering rates of change, the data will be misinterpreted by policy-makers, and the official response to the data will be policy mistakes, based on misconceptions of how the system now works. If you read the analyses of the time, you will realize that the leadership within the Fed, Treasury Department, and other institutions were not stupid. They did not understand the system that the economy and markets had evolved into, didn't know how to measure what was happening when this new system went into crisis, did not know how to interpret the data, could not cope with the torrent of data coming in. With the benefit of 20/20 hindsight, we can now say they made many errors of judgement in response. That will happen again.
On the "...housing starts rebounded 5.9% in September and new home sales were up in August..." comment, our resident real estate expert Sean O'Toole says, "No one was really tracking foreclosures prior to 1992. You'll often see 'biggest increase in 14 years' but 'still at historically low levels' statements in reports. While the first statement is true, the last is dead wrong. The problem is the data show only 14 years of history. 1992 was our last big downturn in CA, for example, and foreclosures were at equally low levels in the late 80's, 1990, 1991 and even 1992. Foreclosure levels didn't peak until 1998, years after the recovery began.
"I believe the current increases in foreclosures, rather than being 'historically low' are in fact alarmingly high when compared to the where they were at a similar point in the last cycle. Unlike all the reports that point to the 'historically low' foreclosure levels as a sign of a soft landing, I believe foreclosure levels are actually inversely correlated with market health; hitting 'all time lows' increases the chances of a major crash, probably in the first or second quarter of 2007."
October 25, 2006 (Jacqueline Thorpe, Financial Post)
More rate hikes possible
In the confusion that is typical when supertanker economies turn, we are back to contemplating the possibility of further interest rate hikes from the Fed.
Wall Street is convinced chairman Ben Bernanke will hold rates steady at 5.25% today, but speculation is brewing the U.S. Federal Reserve's tightening cycle may not be over yet.
It seems like only a nanosecond since both stock and bond markets were surging amid speculation the Fed would ride to the rescue of an imploding housing market as early as the first quarter of 2007.
While stock markets continue to fantasize -- the Dow Jones industrial average hit a record high yesterday -- bonds have sobered up.
The yield on the 10-year U.S. treasury note has risen about 30 basis points to 4.8% in a month. National Bank of Canada notes interest rate futures have gone from pricing in a 45% chance of a rate cut at the January Fed meeting to a 25% possibility now.
Foreign exchange players, meanwhile, have built up a US$8.1-billion net long position on the greenback, the highest since November, 2005.
AntiSpin: Lots of contradictory and incorrect data, as expected. Part of iTulip's prediction on Period X (aka the disinflationary to the inflationary transition in the Ka-Poom cycle), is that as in the early 1930s, the economy and financial systems have fundamentally changed since the last major crisis; the data will be largely comprised of inaccurate measurements of changes going on in the economy and financial markets that are no longer as relevant as in previous transitions, the data will show bewildering rates of change, the data will be misinterpreted by policy-makers, and the official response to the data will be policy mistakes, based on misconceptions of how the system now works. If you read the analyses of the time, you will realize that the leadership within the Fed, Treasury Department, and other institutions were not stupid. They did not understand the system that the economy and markets had evolved into, didn't know how to measure what was happening when this new system went into crisis, did not know how to interpret the data, could not cope with the torrent of data coming in. With the benefit of 20/20 hindsight, we can now say they made many errors of judgement in response. That will happen again.
On the "...housing starts rebounded 5.9% in September and new home sales were up in August..." comment, our resident real estate expert Sean O'Toole says, "No one was really tracking foreclosures prior to 1992. You'll often see 'biggest increase in 14 years' but 'still at historically low levels' statements in reports. While the first statement is true, the last is dead wrong. The problem is the data show only 14 years of history. 1992 was our last big downturn in CA, for example, and foreclosures were at equally low levels in the late 80's, 1990, 1991 and even 1992. Foreclosure levels didn't peak until 1998, years after the recovery began.
"I believe the current increases in foreclosures, rather than being 'historically low' are in fact alarmingly high when compared to the where they were at a similar point in the last cycle. Unlike all the reports that point to the 'historically low' foreclosure levels as a sign of a soft landing, I believe foreclosure levels are actually inversely correlated with market health; hitting 'all time lows' increases the chances of a major crash, probably in the first or second quarter of 2007."
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