Wednesday November 29, 2006 - 10:52:05 GMT
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Black Swan Capital - www.blackswantrading.com
Searching for Waldo
Â· Japan's industrial output rose unexpectedly in October. (Reuters)
Â· Key Reports:
7:00a.m. MBA Refinancing Index. For Nov 17 Wk. Previous: +6.5%.
8:30a.m. Initial Jobless Claims. For Nov 18. Expected: +2K. Previous: -2K.
10:00a.m. End-Nov U Of Mich Consumer Sentiment. Expected: 93.0. Previous: 93.6.
10:00a.m. DJ-BTMU Business Barometer. For Nov 11. Previous: +0.1%.
â€śFederal Reserve officials are getting a first-hand lesson in the law of diminishing returns: Try as they might, they can't seem to get the same mileage from their hawkish rhetoric.â€ť
FX Trading â€“ Searching for Waldo
The Fed keeps talking about all this â€śinflation.â€ť Is it a game of Whereâ€™s Waldo?
Our search is onâ€¦
We canâ€™t find Waldo in the 30-yr T-Bond:
Nope! Canâ€™t seem to locate him in the CPI chart either:
Hmmmâ€¦he seems to be missing from the latest Durable Goods ordersâ€¦an October plunge of
And I doubt weâ€™d find Waldo here, given that the price decline for new homes is falling off the chartâ€¦a fall of 3.5% in October, the largest drop in recorded historyâ€¦(P.S. those gray areas on the chart below represent official recessions)
Source: Northern Trust
The bond â€śvigilantesâ€ť donâ€™t seem to be finding Waldo eitherâ€¦as the curve inverts even further in the face of tough talk from Mr. Bernankeâ€¦
There is some talk that among those more adept at Whereâ€™s Waldo than we, suggesting he is hiding somewhere in unit labor costsâ€¦
But if we are finally starting to see the off the charts fall in housing prices scare the heck out of some of the 69% of US households that own such assets, doesnâ€™t it make sense they might stop buying cars and appliances as reflected in the Durable Goods number? And if that trend continues, which it just might, isnâ€™t it likely business that produce that stuff will start needed fewer employees to produce that stuff? And if those dwelling prices keep tumbling, wonâ€™t it be harder for owners to use them as collateral to withdraw cash to buy new cars or appliances? (Read self-feeding aspect hereâ€¦)
Feedback loopâ€¦stock market? ...Maybe a place where Waldo is really hidingâ€¦.
S&P 500 futures daily:
But if Waldoâ€™s hiding here, it may only be temporaryâ€¦as Paul Kasriel of Northern Trust surmisesâ€¦ [Our emphasis]
â€śIn addition to revisions to third-quarter GDP data, the Commerce Department will release its first estimate of third-quarter corporate profits tomorrow, November 29. As Chart 1 shows, quarter-to-quarter profit growth slowed sharply in the second quarter â€“ to 1.45% from 12.60% in the first quarter. Based on third-quarter labor cost data, I suspect that third-quarter corporate profit growth, measured sequentially, will remain tepid, at best. On a year-over-year basis, however, corporate profit growth is likely to appear rosier given the Katrina-depressed profits in the third quarter of 2005.
â€śWith unit labor costs rising relative to selling prices and with sales volumes slowing, it is difficult to see how corporate profit growth in the near-term can be very strong. And if profit growth slows, where will corporations get the funds to continue â€śretiringâ€ť equity at a record pace â€“ a factor supporting share prices and household deficit pending?â€ť
Is the US dollar already telling the storyâ€”Waldo has left the building!
S&P 500 Index vs. US $ Index Daily:
Jack Crooks, Black Swan Capital www.blackswantrading.com
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