by Addison Wiggin & Ian Mathias
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The truth behind yesterday’s GDP… revealed by the last person we’d expect
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Bernanke all but promises December rate cut
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Banks of the world fire up the press… a recap of the global liquidity rush missed by the mainstream
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Queasy from up-and-down oil prices? The Maniac Trader smoothes the seas with his latest long-term energy call
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Still giddy on China? Bizarre evidence that the red nation’s got a LONG way to go…
After reporting yesterday’s unexpectedly high GDP of 4.9%, we vowed to get to the bottom of this seemingly fudged number. Lucky for us… the White House beat us to it: Despite the government’s outlandishly bullish third-quarter GDP reading yesterday, the Bush administration cut the economic growth forecast for 2008.
As odd as a move it is for this administration, they proved to be the Jim Jones’ of the political world… they’re not drinking their own Kool-Aid.
Well… maybe not all of them
Their forecasts dropped yesterday from 3.1% to 2.7%. Still higher than reality, given the rising foreclosures through 2008… but still a sign that somebody behind that big iron fence on Pennsylvania has a pulse.
Next door, at the Federal Reserve, there’s a similar air of panic. “We at the Federal Reserve will have to remain exceptionally alert and flexible,” said Ben Bernanke in a prepared statement last night, “as we continue to assess how best to promote sustainable economic growth and price stability in the United States.”
“Economic forecasting is always difficult,” he added, feeling our pain, “but the current stresses in financial markets make the uncertainty surrounding the outlook even greater than usual.”
A December rate cut? In the bag. Two questions remain: Will it be 25… or 50 points? And how low will the dollar go?
Trading on Wall Street was somewhat pensive before Bernanke’s remarks. In waiting for the chairman’s guidance, benchmarks barely budged… the Dow and Nasdaq were up about 0.2%, and the S&P 500 stayed mostly unchanged.
But it’ll be a different story today… futures pushed the Dow up a good 1% before trading even began.
Wait. What’s that noise? Sounds like… printing presses whirring on the other side of the Atlantic.
The European Central Bank injected $43 billion in one-week funds on Wednesday. On the same day, Germany announced that it is currently experiencing the most rapid food and energy inflation rates since 1995… could the two events be related?
And yesterday, the Bank of England wished Britons a Merry Christmas with a $20 billion check. This 10 billion pound Band-Aid was used by Mervyn King as a last-ditch effort to bring down the overnight Libor (6.6%) closer to the Bank of England’s main rate of 5.75%.
Whoops… sounds like the presses are getting fired up over here, too. The Fed pumped $8 billion into the U.S. economy yesterday, too.
“Given the high level of attention focused on the coming year end,” said a New York Fed official to Reuters, who ironically did not wish to be named, “we hope to reassure market participants of our commitment to providing sufficient balances at that time by starting to provide those balances now.”
The Fed’s latest round of injections come in the form of an unusually long 52-week repurchase program.
Morgan Stanley Co-President Zoe Cruz got the ax this morning. Perhaps the banking world’s highest-ranking woman, Cruz will leave the firm immediately. Morgan Stanley is still threatening to write down up to $6 billion in subprime exposure in addition to its November charge of $3.7 billion.
“The snooty attitude that we have sometimes seen under the motto of `we are cleverer than the others’ ended in disaster,” commented German Finance Minister Peer Steinbrueck this morning. When asked who was to blame for the global credit squeeze, Peer pointed his finger at the banking community itself.
If it weren’t for “snooty” bankers and their opaque balance sheets, we wouldn’t be in this mess. Heh. This is funny stuff.
“Months have gone by since the end of July, and some managers still don’t know what the impact is on their accounts,” said Steinbrueck, fed up with the bankers who refuse to admit mistakes, thus keeping world markets in limbo…
Amen.
Gold, today, is presenting you with a nice buying opportunity.
The price had been trending lower since yesterday’s high of $808. But when the market opened in New York this morning, traders kicked it all the way down to below $780.
We remember, not too long ago, playing this same game with the $400 price level.
Oil prices, for their part, have been all over the chart this week.
Post-holiday trading shot the goo up to $99 and then down to $95 on production increase news from OPEC… and then even lower, to $91, thanks to a strong dollar… and then back up to $94 after the Enbridge pipeline explosion… now, this morning, it’s all the way back down to $88!
The wires are abuzz with news of the Enbridge pipelines coming back online ahead of forecast, plus a 2% rise in OPEC shipments until Dec. 15.
“Ugh… what a week!” cries our Maniac Trader, Pepto in hand.
“As I said on Fox Business early this week,” remarks Kevin Kerr, “the people that call Peak Oil guys like Byron and myself ‘nuts’ got a good dose of what can happen if one of these facilities blows up, and they do every once in awhile. The Enbridge pipe is a perfect example of a system that is vulnerable to not only mechanical failure, but also sabotage. Winding its way from Northwestern Canada, this exposed line is one of the continent’s longest pipelines, serving the key Midwestern states.”
“As another (almost expected) interest rate cut looms, we expect oil to chug toward $100. The dollar will tank on further ‘forced cuts’ from the Fed… oil will rally through, and gas prices will be $4.20-4.60 into March. Peak Oil is here, and the taste is bitter… Happy Holidays”
The median price of a new home in October fell 13% year over year, the largest such decline since 1970, reports the Commerce Dept.
A new house will now cost you, on average, $217,800.
Across the U.S., home prices fell 0.4% in the third quarter, reported the Office of Federal Housing Enterprise Oversight (OFHEO) yesterday. That’s the first quarterly decline since 1995.
According to the agency, prices rose 1.8% year over year in the third quarter — also the lowest 12-month increase since 1995. Yesterday’s release marks the first time the government has acknowledged a decline in prices since it began.
And you knew this would follow suit… “U.S. Govt., Banks Near Deal to Freeze Subprime Rates,” reads a headline on CNN.
Yesterday, Treasury Secretary Hank Paulson, federal banking regulators and the honchos at some national home loan organizations met in private. The reason? They now want the government to bail out the 2.3 million poor credit borrowers whose home loans will reset to higher rates in 2008.
Yawn. Ho… hum. Another tax for you… Another reason not to keep your own fiscal house in order.
Last item for today. Just a little something to keep in mind when you’re getting all lathered up with excitement over China… “the next great economic superpower”… “the global growth story of our time”: They’ve still got issues…
A Chinese woman: Celebrating civil rights…
This morning, Chinese officials ordered police to stop arresting women who were found carrying condoms. Progress. Condom possession has heretofore been deemed tangible evidence of prostitution.
“Despite efforts to stop the practice,” says AFP, a global news organization, “women in China are still being sent to labor camps for prostitution offences merely because they were carrying condoms when detained by police.”
Authorities estimate some 700,000 Chinese have HIV or AIDS, with “tens of thousands” added each year. Legalizing condom possession miiiight be a good idea…
“I can’t find on the Sundance site when your film is screening,” wrote a reader. “I’ll be traveling in the U.S. at that time (from Canada) and might like to check it out.
“I’m also wondering if any of the Agora crew will be there and perhaps throwing a party. It’d be nice to meet some of y’all.”
The 5 responds:
We’ll be there… with bells on. And we’re considering hosting a reception, too. The “world premiere” will likely be on Jan. 18 or 19, but the festival organizers haven’t released the program yet. They’re going to publish the premiere and additional showtimes in mid-December. We’ll keep you posted on the date, time and location of the reception, too.
Would be great to see you there,
Addison Wiggin
The 5 Min. Forecast
ADDITIONAL RESOURCES
U.S. home prices drop quarterly, first time in nearly 13 years
Oil Falls Below $90 in New York for the First Time This Month
Bernanke clears way for Fed rate cut