Tuesday :: Jan 3, 2006

$ign$ Of The Time$

by pessimist

In some parts of the world, the economy is going quite well:

China’s GDP grew faster than forecast in 2005 - and the revised 2005 growth figure of 9.8 percent is not the final official number. Original figures put China's economic growth at 9.5 percent in both 2003 and 2004.

The new data, compiled from 30 million businesses by the National Bureau of Statistics, put China's 2004 gross domestic product, or GDP, at nearly 16 trillion yuan (US$2 trillion; euro1.6 trillion). The results show mainland China replacing Italy as the world's 6th-largest economy, trailing Britain and France.

China isn't alone in experiencing prosperity:

Singapore economic growth exceeds expectations, increasing 7.7% in the fourth quarter of 2005, which was "not a surprise" to industry watchers

And what of King George's American 'boom'?

It fizzled:

The major three U.S. indexes ended mixed, with the Dow Jones industrial average turning its slim 2005 gain into a 0.6% loss Friday with its year-ending sell-off. The Nasdaq composite managed to eke out a 1.4% gain for the year. And the Standard & Poor's 500 posted the best performance with its paltry 3% gain.
U.S. indexes trailed virtually every foreign market.

That is just the beginning of the reality-based economic outlook. There is more on the flip side.

In addition to the poor 2005 showing of the American markets, economic socialists like Newsweek's Wall Street editor Allan Sloan don't see much of an improvement in the works:

No Bull: Dow's Glory Days Are Over
January 3, 2006

There's nothing like a looming anniversary to make you contemplate some of life's bigger questions, and we're closing in on a big date for us stock-market types: six years since the all-time high of the Dow Jones industrial average.

On Jan. 14, 2000, the Dow closed at 11,727.98, up more than 140 points on the day. Market mania was in full swing. The economy was in a stock-fueled boom, Internet giant America Online had just announced its purchase of Time Warner, with analysts gushing about how that supposedly brilliant deal would transform the media landscape. It seemed it would be only a matter of time until we saw the Dow reach 12,000 and 20,000 and points beyond.

Stocks, as measured by the S&P 500, returned almost 20 percent a year, compounded, from August of 1982 through early 2000. An entire investing generation got used to seeing the value of its portfolio double every 3.5 years or so. That created an environment in which your 401(k) almost couldn't help but do well. Had stock prices continued rising at their historical rate, the Dow would now be around 18,000 -- more than half again as high as it is now.

But that bull market, which saw the Dow rise 1,400 percent in less than 18 years, is so over. The odds of seeing anything like it again in our lifetime are, at best, remote.
Stocks, as defined both by the narrow 30-stock Dow average and by useful broad indexes, such as the Standard & Poor's 500 and the Dow Jones Wilshire 5000, are still below where they were six years ago. (We won't even talk about the Nasdaq, still more than 50 percent below its high.)
Besides, focusing on the daily Dow means you're looking at details and missing the big picture. Which is this:

The Dow, created in 1896, is an arithmetical average calculated by adding up the share prices of 30 stocks and dividing the total by a wonderfully precise number, most recently 0.12493117. The S&P 500 and the Wilshire are much more important, broad-based indexes that are keyed to the stock market's overall value. In the S&P 500, a dollar change in Microsoft's 10.6 billion shares counts about 18 times as much as a dollar change in General Motors' 565 million shares. But in the Dow, a dollar change in either stock moves the average by the same 8.004 points.

To simplify this, there are 18 times the number of Microsoft shares as there are GM shares, so a dollar more in Microsoft share value would mean 18 shares saw a dollar increase compared to only one share of GM - a net economic increase of $18 versus $1.

Dow Jones says about $21 billion of investments are tied to the industrial average. S&P says $1.1 trillion -- 50 times as much -- is tied to the 500, which is the benchmark that analysts use to measure investment performance. Yet when people ask whether the market's up or down, I tell them about the Dow. Go figure.

Finally, the fact that we're even discussing the Dow shows the power of history and myth. Memories of the boom years were so strong that last year President Bush could tout private Social Security stock market accounts as a way to make millions of Americans rich, without his being immediately laughed down. You can see some of that old-time bull market triumphalism seeping back as the Dow flirts with 11,000, a number that has absolutely no economic value and only limited psychological value.

But enough, already. Why ruin a perfectly good anniversary with all this heavy thinking?

Indeed! Just believe what you are told, citizen, and keep shopping against terrorism - before the prices go up:!

Dollar slips on interest rate outlook
January 3 2006

The dollar fell in European morning trade on Tuesday as the eurozone unveiled solid economic data and traders remained wary of the dollar ahead of the release of the minutes of the Federal Reserve’s December meeting. The minutes, due to be released later on Tuesday, will give an indication as to how close US rates are to their peak, with many analysts pricing-in just half a point of further tightening, taking rates to 4.75 per cent.

"In the next few months we expect the Fed’s rhetoric to come into line with the markets assessment, suggesting US rate expectations will level out," said Hans Redeker, head of currency strategy at BNP Paribas. "With the end of the US rate hike cycle now in sight, the days of dollar strength are numbered."

Ahead of the minutes, the dollar fell against the euro, against the yen, against sterling and the Swiss franc. A number of Asian currencies also made gains against the dollar, with the South Korean won rising to a seven-month high on signs of increasing demand for the country’s exports. The Taiwan dollar rose to a four-month high amid foreign buying of Taiwanese stocks, while the likelihood of increased foreign buying of Indonesian bonds helped the rupiah firm to a five-month high against the dollar. The Singapore dollar rose to a four-month high as GDP growth in the city state accelerated to an annualised rate of 9.7 per cent in the fourth quarter.

That is the good news. Why the good news? Because more bad news is on the way:

Dollar Drops on Speculation Fed to Signal End to Rising Rates
January 3, 2006

The euro rose the most against the dollar in more than three weeks on speculation U.S. Federal Reserve minutes will signal the central bank is moving closer to halting an 18-month policy of raising interest rates. "The Fed is close to the end of its rate hike cycle while the ECB is just beginning, which removes support for the dollar," said Carsten Fritsch, a currency strategist at Commerzbank AG in Frankfurt. Fritsch expects the dollar to retreat to $1.24 per euro and 109 yen by the end of the year.

The Fed issues minutes today for the Dec. 13 meeting at which it stopped saying rates were at a level that would stimulate growth, a sign it is nearer to a change in policy. The dollar fell the most in six years against the yen that week.

It isn't just the dollar that is losing favor with the world's investors. Federal Treasury Notes - the economic instrument that lets George claim things are going well - are being affected by a lackluster performance statistic:

Treasuries ease ahead of U.S. factory and Fed data
Jan 3, 2006

Some hint as to the state of the economy at the end of last year was also expected this morning when The Institute for Supply Management releases its December manufacturing index. The index is expected to have slipped in December, although economists said the index would likely still show that manufacturing is in an expansionary phase. The median forecast from 42 economists polled by Reuters put the December reading on the ISM manufacturing index at 57.5, down from 58.1 in November, but still above 50, which separates growth from contraction.

Only barely - and we are going into a period during which consumer spending will decline as higher energy costs, and more cutbacks in employment, lower wages, reduced employer-paid benefits, and lost pensions curtail that vital economic engine of American Prosperity. Reduced numbers in these categories by necessity equates to reduced consumer spending, reduced retailer profits, and lower stock prices. Lower stock prices are reflected in the condition of bonds needing to offer higher yields to attract investors. And as we have already seen above, the investors have better options than the Bu$hCo dollar.

Still willing to invest your future with Bu$hCo?

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