Prague Twin

Friday, September 15, 2006

Economy

Today should be a big day for markets.

The Dow has turned the 11,300 resistance level into a support level and is set for a test of the May high above 11,700. Oil has lost almost 20% of it's value in the last month, settling just above $63 a barrel. I had said that I didn't expect it to go below $65 and I wasn't alone, but I would be VERY surprised if it goes much below $60.

But in a few hours, Ford is expected to release the details of their restructuring. As many as 75,000 workers may be layed off. Probably more importantly, at 2:30 EDT, the Consumer Price Index (CPI) will be announced. Some analysts are calling for a larger number than predicted. If inflation does not show signs of abating, you will see a sharp drop in commodities today.

Signs of stability are encouraging (lower oil, lower gold, lower commodities). However, with almost everyone expecting a US slowdown, I think once again Wall Street is teetering on overexuberance. I think that inflation will continue to print numbers above expectations and this will have a negative effect on commodities as expectations for another Fed rate-hike by the end of the year are reinforced.

The positive would be for the US dollar which has fought off recent attacks and was poised for a serious comeback all week. That position finally gave way yesterday when the momentum went back against the dollar. I think that people are positioning ahead of today's CPI data, and the dollar could break through important levels should the data come in higher than expected.

Any other predictions?

UPDATE: Inflation numbers printed in line with expectations against my prediction. The exuberance from this has resulted in a healthy jump in equities in the first hour. The all time high set four months ago is only about 100 points away. A failure to break that May high should result in a pretty strong correction I would think. We are sitting on a strong 1,000 point rally right now without any major corections after the last test of the 10,700 bottom.

As has been the case lately, once again the U.S. dollar defies convention by strengthening on the CPI data after a very small speculative dip. This shows that the market already believes the Fed is finished tightening so more evidence to that end does not pressure the dollar.

The S&P is four points away from a five and half year high oil has broken levels below $62.20 which is very significant.

This couldn't really be better for the GOP.

8 Comments:

  • Wolf Blitzer was talking to political analyst Jeff Greenfield last night on CNN and Wolf said, "Now that the economy is doing so well, that should help the president and his republican Party going into the November midterms." And Greenfield sais, "Well, Wolf, it takes a while for a president to get positive credit for the economy, so while it is doing well, I don't think Bush is going to get credit for it just yet."

    Question, pt: When did the American economy get "good" again?

    Oil fell sharply, gas prices are down (which Chris Bowers says is responsible for the slight uptick in the preznit's approval ratings in the NBC/WSJ and ABC News polls), the markets are soaring, and mortgage rates have fallen a bit but other than that, I don't see how the economy suddenly became "good" again (other than the RNC is spinning lower gas prices as good and Wolf, bless his heart, is repeating their talking points for them.) Aren't the fundamentals the same? Aren't we looking at a slowing economy for the third and fourth quarters?

    By Blogger reality-based educator, at 12:57 PM  

  • PT

    To go along with RBE's question of when did it get good, could you also look into when it got bad?

    I really like your analysis on the topic of the markets and the economy and tend to see it as more credible than most other observations.

    By Anonymous Arch Stanton, at 3:29 PM  

  • arch, ask the people who have watched their wages stagnate over the last five years while food, fuel, health care, housing and college costs (not to mention corporate profits) have soared when the economy got good. And tha's not taking into account the record amount of debt Americans are carrying. The macro numbers have been pretty good but that doesn't mean everybody is sharing in the goodness.

    By Blogger reality-based educator, at 9:58 PM  

  • The economy is always good for the ruling class. My wage has gone up 40 cents per year for the last few years, hardly keeping up with the cost of living.

    I think ford bought out a lot of unionized workers. Anyone know how much?

    By Blogger GraemeAnfinson, at 1:19 PM  

  • 30,000 in the next by 2012 I believe.

    I think RBE really hits it on the head. I was thinking about the 84 election when Reagan asked if you were better off than you were 4 years ago. And at that time, the answer was generally yes (unless you were poor or relied on Federally subsidised state programs).

    But under this president, profits have soared but most people are living more financially risky lives. The median income is barely keeping up with the cost of living rises.

    Not to say it is his fault, but we are talking generally about the economy. I think what worries me most is that during this booming economy, the average american is going into more debt and has seen their statndard of living fall, even if only slightly. And when it corrects, you can expect the American worker to feel the full brunt of the downturn.

    Some of them, like the Ford employees are already feeling the pain, and that is during a booming economy. How many workers would Ford have to let go during a recession?

    By Blogger Praguetwin, at 8:41 PM  

  • Reuters says Dow may hit record high this week. Definitely good times for the investor class. And Sept is supposed to be the bad month for the markets!

    By Blogger reality-based educator, at 10:21 PM  

  • Again, when did the economy get bad?

    By Anonymous Arch Stanton, at 3:20 PM  

  • What is bad about the economy, Arch, is that despite record profits and possible a new record high for the Dow this week, wages are not increasing at a rate that even meet cost of living increases. So while the American working is not sharing in the gains that are being made now, you can be sure he/she will bear the full brunt of the slowdown that is sure to take place by the end of this year.

    Usually, as in 84, when the stock market is booming companies are making record profits, the working class shares the wealth.

    That has not been the case this time.

    By Blogger Praguetwin, at 4:41 PM  

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