Prague Twin

Wednesday, October 18, 2006

Dow Hits 12,000

To my utter disbelief, the Dow Jones Industrial Average hit it's highest level ever before dropping back under 12,000. Better than expected housing numbers and inflation readings in line with expectations are cited as the impetus. Once again, I have underestimated the resilliance of the US economy.

The CPI headline number was -.5% which is actually deflation, but of course this is almost entirely due to the drop in fuel prices. The core number was .2% leaving the year on year average at 2.9%. Although these numbers are in line with expectaions, the inflation risk remains. No one is pricing in a rate hike at this point, but projections for when the Fed might lower rates are now largely centered around Q2 in 2007.

Lower oil and gas prices will help fend off the inflation monster, but at 2.9% core y/y, the Fed is still walking a fine line. I'm sure Bernanke is breathing new sighs of relief with each drop in oil prices. Crude inventories came in above expectations as well sending gas futures even lower.

New housing starts came in a bit above consensus, but this is very significant as the numbers have been exceptionally bad all year. One dark cloud is that new housing permits came in lower than expected indicating that market is still in decline. If starts can hold here at about 1.7 million per year on average, then the soft landing theory could pan out.

One last thought: could there be an election correction? If the Democrats take one or both Houses in the election, could Wall Street panic?

I have a feeling we are going to find out.

26 Comments:

  • What you underestimated was the economic policys of G.W.B.

    By Anonymous Arch Stanton, at 11:54 PM  

  • I think what I underestimated was the ability of the American consumer to shrug off fear and just kept spending despite record personal debt.

    No policy in the world can make that happen.

    By Blogger Praguetwin, at 8:42 AM  

  • You know what, I'm convinced that Cheney's right - deficits and debt do not matter - not at the personal level and not at the gov't level.

    I'm gonna go out and do the patriotic thing tonight and buy a shitload of stuff I don't need and put it on my credit card and then just pay the minimum balance (and 29.99% interest) on it for the next 13 years until I finally pay the fucking crap I bought today off.

    What the heck - it's just the right thing to do. And it will make GWB and Big Time Cheney happy. And isn't that all that matters?

    By Blogger reality-based educator, at 12:54 AM  

  • RBE;

    Are you suggesting that the deficit is growing?

    By Anonymous Arch Stanton, at 3:45 AM  

  • Arch,

    1. Stop drinking your own bathwater.

    2. Definitely stop drinking W's bathwater and then declaiming it is vintage champagne.

    By Anonymous The Loop Garoo Kid, at 4:37 AM  

  • RBE,

    Great idea! That is exactly what the economy needs you to do! Forget about the future, you might be dead from a terrorist attack anyway! Live large now!

    Arch,

    The debt is growing, rapidly. If you want to point to a "shrinking deficit" after the deficit has been quadrupled over the last 6 years, go ahead and drink your own bath water regardless of the Kid's advice.

    The debt is still growing at over half a trillion per year.

    Are you suggesting it isn't?

    By Blogger Praguetwin, at 8:08 AM  

  • RBE

    Well are you?

    By Anonymous Arch Stanton, at 2:19 AM  

  • Kid

    Did you come here just to insult, or do you actually have something to contribute?

    Here’s a homework assignment:

    What is the current unemployment rate in the U.S., and when was the last time it was the same?

    By Anonymous Arch Stanton, at 3:47 AM  

  • God, I hope you're wrong about that last part. As to loopy's homework assignment. The unemployment figure is 4.6% and it was that in 7/01 and before that in 9/98, after which it dropped below that reaching for a few months 3.9, all under Clinton. Good times.
    I continue to be amazed by the wilful pessimism of the lefties. If there's so much bad news to report why do they distort the actual good news of the economy. Not a sign of mental health in my book.

    By Blogger Roger Fraley, at 4:32 PM  

  • PT

    Can you at least acknowledge that - as the budget deficit shrinks - we are moving in the right direction?

    By Anonymous Arch Stanton, at 5:27 PM  

  • hell, the more they keep oursourcing, the better the Dow and the S&P gets...

    hey, email me when you get a chance.
    I know you from Tom Harper's blog.
    wanted to ask you stuff about prague; we're traveling there late next month..

    peace.

    By Blogger Mike V., at 8:47 PM  

  • RBE

    PT

    Kid

    ......cat got your tongue????

    By Anonymous Arch Stanton, at 9:35 AM  

  • In his song, "Who Stole The Soul Of Johnny Dreams" folk singer John Stewart (not the TV star) says it best, "Attention K-Mart shoppers, do you really need all that crap?" I have no credit cards and don't want any. If I can't afford it I don't need it.

    Good news! I've been told that the one day lay off's are over where I work. We'll be going back to 40 hour weeks. Someone must be buying leather again.

    God Bless America, God Save The Republic

    By Blogger David Schantz, at 11:33 AM  

  • Arch,

    I'm not going to get into how deceptive the deficit figure is, other than to say Iraq is not included.

    The debt is still growing at the same pace as it has been. When that trend starts to show any sign of changing, then I will say we are going in the right direction.

    I find it ironic that you would say this..

    Did you come here just to insult, or do you actually have something to contribute?

    I enjoy your detractions, but that is pretty much all you do. The kid's contributions are at least equal to your own here so I wouldn't throw stones.

    I've been away from the computer for two days, by the way.

    And speaking of the cat getting your tounge, I asked you a question which you never answered. Again, throwing stones in glass houses are we?

    By Blogger Praguetwin, at 11:47 AM  

  • David,

    I'm glad to hear about your work. I agree with you on credit cards, but some debt isn't bad, especially when inflation is nearly the going rate for a mortgage, that means it is free money. Not a bad deal to have a house you live in now and pay for as you go along. In the end you give it to your kids.

    Good deal.

    By Blogger Praguetwin, at 11:52 AM  

  • PT,

    Are you saying it would be a good idea to refinance credit card debt into a mortgage? That always seemed like a stupid thing to me, but then again I've never factored inflation into my calculations.

    By Blogger Stephanie, at 2:50 PM  

  • PT

    Do you understand how the deficit relates to the debt?

    As to my response to the Kid, I have never posted a statement here wherein I suggest someone is drinking his or her own bath water (or dinking Kool-Aid as I am prone to do) with out at least having a reason why, or presenting an alternative viewpoint. As Mr. Fraley has pointed out: There is willful pessimism of the lefties as it relates to the economy, which in my book truly does equate to drinking ones own bath water.

    By Anonymous Arch Stanton, at 5:16 PM  

  • Stephanie

    In my opinion it is good to refinance credit card debt into a mortgage as credit card interest rates are generally speaking a great deal higher than mortgage rates. In addition credit card debt is not considered a tax write off, where as the mortgage is.

    Just my 2C

    By Anonymous Arch Stanton, at 5:21 PM  

  • Arch,

    If you want to talk nomenclature, let's be sure which deficit you are talking about.

    I agree with your assesment of credit card debt by the way.

    And Stephanie, Welcome back!

    By Blogger Praguetwin, at 7:34 AM  

  • Thank you, PT, it's great to be blogging again!

    As for the credit thing, I'll have to keep that in mind. Obviously "faster" isn't necessarily "cheaper." Who'd a thought?
    ;-)

    Despite being poor (by American standards) we actually have real good credit -- a strange consequence of having "pay the bills" as your first monetary priority -- so we get a lot of refinancing offers. We also thought it would be cheaper to pay our credit cards off separately than our mortgage, but the inflation thing makes sense. Besides, after I get my degree, if we have only the mortgage and the student loans, it'll be easier to get out of debt completely.

    By Blogger Stephanie, at 12:45 PM  

  • The main thing is to take the lowest interest rate you can get, and never borrow for more than 20 years.

    At least that is my theory on credit.

    By Blogger Praguetwin, at 2:01 PM  

  • Stephanie

    To add to what PT said.

    Since you sound like a financially disciplined person, you can get a 30-year and pay it as a 20-year. This is what I have done as it gives me flexibility should something negative happen to my financial situation.

    By Anonymous Arch Stanton, at 3:18 PM  

  • PT

    I'm talking about the U.S. budget deficit.

    Which one are you talking about?

    Here’s a story that the lame stream media didn’t bother to report.

    http://www.chicagotribune.com/business/chi-0610120205oct12,0,4916061.story?coll=chi-business-hed

    By Anonymous Arch Stanton, at 3:33 PM  

  • Truncated link. Arch, you really should learn how to make these.

    They work a lot better.

    So you are talking about the official budget deficit that does not count emergency spending (i.e. Iraq) or interest on the public debt.

    Correct?

    By Blogger Praguetwin, at 4:36 PM  

  • Arch,

    We tried doing that, but being poor is an intervening issue. I'm working on that, but I have 3+ years to go before graduation and eventually employment. Preferably profitable home-based business writing business, but debt-load and grant access will be a determining factor there.

    By Blogger Stephanie, at 8:57 PM  

  • PT

    Just how DOES one make those things???

    OK, Show me your source on the numbers. I will do my best to explain them if I can.

    Stephanie

    I wish you the best of luck in your endeavors.

    By Anonymous Arch Stanton, at 4:53 AM  

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