What Matters: Retailing #'s

Almost without a doubt, the biggest economic story is the one swirling about how pre-holiday shopping went Friday and how it will go for the balance of the weekend.  This being a consumer-driven economy, what happens at the cash registers this weekend will set the mood for all kinds of folks, but in particular, it will answer the question: "Are American Consumers really tightening the belt in reaction to higher energy prices, under-reported inflation, and the housing bust?"

It's too early to tell:  The real tallies won't come in until the Monday-Tuesday timeframe, so between not and then, we'll be looking at stories about how "Shoppers take advantage of Black Friday deals" as being indicative that something if going on, but just what it means won't be clear until the nation's biggest retailers go to shareholder confessionals next week and report either sales up compared with last year, or down, as the case may be.

This will present a 'newbie' to sorting out weasel-worded financial reports with a golden opportunity to cut through corporate PRBS.  One thing to look for will be retailers who begin their press releases with something like "Sales of xxx (- where xxx means one department within a store, or other) were up yyy percent this year."  What the under-performers will be trying to do is give the impression that everything is hunky-dory.  You job, as an UrbanSurvivor, is to seek out disclosure phrases like "overall, sales were up/down z percent" - those being the real nu7mbers you're after as an investor.  Who cares if electronics go up 20% if overall sales are down 10%, right?

Moreover, just as "Weather the most important driver for beer consumption in Brazil", so too, weather has a lot to do with holiday shopping in the USA.  One day of retail sales figures can be greatly moved just by the weather.  Again, the thing to zoom out on is the overall picture.

Don't forget Truth versus Inflation: an "increase in sales" doesn't really mean much, until it is compared to (or subtracted from) the prevailing rate of inflation.  In other words, from an economic stimulus standpoint, if inflation has been running 5% and sales are reported in some PRBS as "Sales Overall Up 5% compared with last year..." then a reasonable person (or even me) would conclude that there really hasn't been any increase to spur general prosperity.  It's just inflation working its way through the system.

More definitively, we will get new Consumer Debt figures from the Fed in a week or two, which are much more meaningful.  You may recall that the November report on Consumer Debt (which they insist for bankstery reasons on calling Consumer 'Credit') was up 1.8% on an annualized basis, which when you're in a 2-6% inflation setting is actually the best sign you could ask for that the economy is already in a recession, although classical economystics would hold otherwise.

It honestly boils down to this:  Be very very skeptical of the earliest reports that sales are up (or down) so much this year.  Remember weather is key, crank in your best estimate of inflation, and go from there.

Shocking Electric Bill

I like to use my electric bill as a good local benchmark for what inflation (the real stuff, not the corpgov / PRBS reported stuff).  My neighbor and I were both amused to receive word that our local electric co-op was raising rates 5.9%.   I don't like the number a bit, although it's not worth going to a 'public meeting' on such because, as any darned fool knows, such increases are already a 'done deal' and public meetings are just a chance for management to put on the PRBS 'we care' face while hiding the fact that 'inflation is really a lot higher than we're letting on" reality of it.

Bank Run Tip

A former senior commercial loan type in the banking business sends along this "confirmation" of how things are going in the US banking world:

"Just a note based on what I read. I just left my banking position (major money center banks as senior commercial loan officer) and the comment from one of your readers holds true. There is a procedure in place now to circumvent any type of 'run' on funds. Specific plans for limiting daily cash draws and total withdrawals within a specific time period. Read the small print on bank literature, their ability to do this is there.

 

Secondly, I was in commercial lending and there is no new policy position to limit corporate borrowing. However the credit folks are becoming the stone wall leaving the officers to deal with the customers as to why they don't quality when their financial situation is as good or better than during previous credit actions. My counterparts at other banks are experiencing like problems. Drying up the credit to businesses, unofficially. Not a good sign. Thanks for your good work."

Conservatives Out

In Australia, the conservative government which was closely tied policy-wise to the neocons in DC, have been handed their walking papers by voters.  This means that Australia will likely pull its troops out of Iraq at some point, and will maybe even join the rest of the planet and sign the Kyoto Accords.  Which leaves...oh, don't get me started.  It's a weekend, after all... 

On the other hand:  These results are based largely on exit polls and these being conservatives, we have to wonder about voting machines, eh?

Life in Africa's Weimar

If you're into economics, and haven't at least read a short summary of how utterly bad an economy can go, then you owe yourself a quick read here.  The 1920's experience in Germany was not only a marvelous example of inflation, but how economics can lead to a dictatorship.

Then, as you smugly think "Oh, that can't happen again..." go read up on recent economic events in Zimbabwe were there's $58-tillon in cash currently in circulation.  The gross domestic product of the country, figures the CIA, is about $25.6 billion (US) dollars. 

You're welcome to figure out math, but the really short answer is that when a government prints up $58 trillion against an economy producing $25.6 billion in goods, you've got runaway inflation.

Inflation Elsewhere

The thing to watch, especially if you have diversified some of your retirement to so-called global funds, is inflation in other countries. Wholesale inflation in India is now running 3.01% by local reports. And the latest headline number out of China is 4.5% for the year. 

Say, did I mention my electric power bill is going up 5.9%....oh....uh...yeah...

Eat This

Another data point in my cognitive dissonant world comes from the pages of the Atlanta Journal Constitution which headlines: "Food prices likely to keep climbing". They (properly) note that food price inflation is about 4.4% year-on-year rather than the corpgov 2% core rate, which they were too polite to call a political wet dream.

Truth Detectors

Oil sellers, not fooled by any of this have continued to hold prices near $100, and the price of gold moved smartly back over $800 at week's end.  Truth detectors.

Texas Sky Spies

Some of that UAV  technology that's been used by the military In Iraq/Afghanistan/ and we hear Iran, is coming home to roost in places like Houston.  Under the guise of 'homeland security' no doubt. 

But, now here's a question:  Will the FAA allow these little critters to fly at altitudes lower than legally permitted by 'human aboard' craft?  AND, if one is flying low over my ranch and I shoot it down (mistaking it for a vulture going after my chickens) would that make me a "t" word person?

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Coping: Food Around the Word

Thanks to a couple of sharp-eyed readers, I've tracked down two places where you can see the post "What People Eat Around the World".  Look for the relationship between packaged and processed foods and costs...  Also at Stan (& Holly) Deyo's site now.

Making Ends Meet

Another great reader idea:

George, Your readers might be interested in this free website that has some great financial planning information. The main website is www.crown.org.  It is a Christian financial (non-denominational) website to help people plan their finances and get out of debt. Although the website is based on Biblical principles, the information applies to anyone.

 

The premise of the website is how to live comfortably within your means, and how to reduce and eliminate your debt so you will be in a position to be financially stable and be able to increase your giving. There are budgets, calculators, and options to talk to online or in-person financial coaches (at no charge). One of the best features of this website is their "money map". It can also be accessed at www.crownmoneymap.org .

 

This gives detailed explanations to the seven steps to financial freedom. Every kid in high school should be exposed to this information. You would also be surprised at how many adults call in to their daily radio show in financial straits who have followed this money map and eventually gotten back on stable ground.

 

step one: emergency savings of $1000

step two: pay off credit cards, increase savings to 1 month of living expenses

step three: pay off all consumer debt, increase savings to 3 months of living expenses

step four: begin to save for major purchases (home, car, retirement, kids' education)

step five: buy affordable home and begin investing (prepay mortgage)

step six: pay off mortgage

step seven: retirement is funded, begin giving more generously

 

As you can imagine, this group counseled strongly against taking out adjustable, zero-down mortgages during the recent housing boom. Living beneath your means may come easy to you and I because we were raised that way, but not everyone has had that advantage.

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Around the Ranch

A reader was kind enough to send in an economist joke making the rounds:

"A mathematician, an accountant and an economist apply for the same job. The interviewer calls in the mathematician and asks, "What do two plus two equal?" The mathematician replies "Four." The interviewer asks "Four, exactly?" The mathematician looks at the interviewer incredulously and says "Yes, four, exactly." Then the interviewer calls in the accountant and asks him the same question. The accountant says, "On average, four - give or take 10 percent, but on average, four." Then the interviewer calls in the economist and poses the same question: "What do two plus two equal?" The economist gets up, locks the door, closes the shade, sits down next to the interviewer and says, "What number did you have in mind?"

That's the kind of thing that goes through my head when I see previously noisy data sets from government agencies suddenly (since the first of this year) lose their "noise."  Seriously makes me wonder has statistical variation become extinct due to global warming, or something.  Couldn't be political now, could it?

Friday November 23, 2007

Same Trends, Acceleration Next?

So here we are at the front end of the emotional release period, largely financial in nature, which should carry us into the final week of January.  Doesn't look particularly frightening at the moment, just a continuation of trends spotted earlier:

• The dollar collapse is continuing in slow motion.

• Consequently, gold is back up above $800, and a move toward $900 is almost a given since a triple bottom has been put in.

• The price of black gold (oil) has been flirting with the $100 level, buoyed by the idea of a depreciating buck (so it will take more of them) to buy a barrel pushing prices up, while declining demand that comes along with the "R" word (hint: recession") or, more likely by my reckoning, the "D" word.

• With those forces balancing out (for a few hours, anyway) the eyes of the nation's investors turn to how well (or unwell) holiday sales go.

Headlines seem likely to drive things now with the headlines pointing toward a higher open.  Sadly, a higher open doesn't necessarily mean a higher close.  We've seen a number of higher opens reversed lately.  In my tracks of 1929 and 1987, a perfect close replaying 1987 would be a close at 12,914.74, while a 1929 parallel would argue for 12,518.4.

A close significantly over 13,050 by next Tuesday would signify the tracking has been over-powered by the Fed and the PPT, but if we test 12,000 this week, the 1929 track would suggest testing 8,600 the first week of December.  Feel better now?

Which "Big Bank"?

A Financial Times story, "Trading in derivatives slows to a trickle" contains this one juicy nuggtest to be following closely, given our report last week on how some of the Big Banks in the US are putting limits on the amounts you can wire transfer out of your account daily or monthly:

"Although Thursday is typically slow because of the US Thanksgiving holiday, bankers said the week had been unusually light because of the growing fears that a big bank could go under as a result of losses in the US subprime mortgage and structured finance markets. "

OK, so which Big Bank?  Watching for signs...

Look at your Naval...

...stories:  A cruise ship has been abandoned off the Antarctic - sounds like it may have hit something.

The USS Kitty Hawk was barred from making port (& liberties) in Hong Kong over T-Day.

Middle East Talks

Arab foreign ministers met in Egypt today in a tune-up for Middle East talks in Annapolis next week. Holding your breathe for a break-through?  Not recommended...

Your Electronic Leash

A very good story in the Washington Post about how the government is getting cell phone tracking information without specific probable cause that a crime is being committed...

I'm reminded that my late father warned me (back when I started carrying a largish Motorola portable VHF radio as a newscaster in the 1970's)... "Why do you want to carry an electronic dog leash?"  I don't carry a cell phone today for this (and health) reasons.

CorpGov Chronicles

A study by the Heritage Foundation claims democrats are the party of the rich.   But what's the Heritage Foundation?  Says Wikipedia in part it's one of  "...the most prominent conservative think tanks..." 

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In my simple world, conservatives calling liberals the party of the rich is not exactly surprising.  Seems to me there's only one party in America anymore, and until corporations are effectively banned from buying favors from both parties, and only humans allowed to contribute, this kind of story feels to me more designed to prop up the failing illusion than delve into any deep-seated truth.    Next story, please?

Surfing the Inbox

Great content in the inbox this morning.  here's a good starter: a street-level view of the quickly forgotten people suffering in the aftermath of the SoCal fires.  (Remember those?  MainStreamMedia doesn't seem to...)

"Hey Mr. Ure,

So I returned home from school for the holiday not realizing how hard it would be to wake up and look out the window and see burned out houses. My folk's house is right in the middle of one of the hardest hit parts of San Diego with a large number of the houses on the street gone. I can't tell if the fires demonstrated more the strength and courage of the community or the ugly passions hiding deep inside white suburbanites. I came home to violent hate messages against immigrants and gays sprayed on the walls of my subdivision, cops stand watch for looters on every other street corner and newspaper editorial pages continue day after day publishing confused finger pointing. Amidst all the debate not one voice calls out the obvious underlying problems behind the whole crisis. If the next few years of suburban life were a film coming out in 2008, what I've seen today would be the official movie poster.

Here's by far the sickest part of the situation, though. A week before I got here, my mother caught some ad agency trying to do a photo shoot at the site of one of the destroyed homes (whose owners had no idea this was happening). She was taking my brother home from school and saw the models--all dressed up in clearly expensive apparel--leaning against the one wall still standing on the plot as photographers shot away as they do. After calling the cops my mother came out to argue with the photographers as another truck filled with more photography equipment pulled up. Unfortunately they left before the cops could come arrest them. While thanking my mother later that day for scaring them away, the women of the burned house mentioned that if one of the models hurt herself while stumbling through the rubble, the owners of the plot would be held liable.

I hate to admit it but a part of me wished my folk's house had burned down. Then they might have realized it was time to leave this city with a human population capacity of probably less than a few thousand that shares a border with one of the most unstable countries in the hemisphere. This sickest part about it is that many people who lost everything are staying and rebuilding on the same exact plots. They will be royally f**ked over. But you can't exactly warn them personally, can you. Carolyn Baker is right, people will not 'get it' until they are literally starving and by then it WILL be too late."

Not our job to 'save everyone' - just trying to raise consciousness a bit that there's more going on that makes headlines.  Which sort of gets to this next one:

"Hope you had a Happy Thanksgiving! As dismal as the future may seem, we still sure have a lot to be thankful for. I hope you'll agree.

I skimmed your article about the end of Fiat money. How fitting and prophetic as the very next day the Fed raided the Liberty Dollar headquarters and confiscated over 2 tons of gold and silver there.

http://www.libertydollar.org/ld/legal/articles.htm 

I've also noticed that recently all merchants are expected to comply to greater so called "security standards" if they are wanting to conduct credit card transactions with their customers. While this might appear to be a positive move on the outside, the implications of it scare me a bit. Whenever you have a proactive action towards greater security, there is always an opposite and equal loss of privacy and freedom on the other end. Maybe I am wrong here or overly suspicious, but it does seem to me like the move toward the latest PCI compliance standards here is not necessary as much to protect consumers as it is to monitor the transactions of the merchants. Although the double benefit here for the powers that be, may also be that it will motivate consumers to shift more towards the greater use of credit in conducting transactions because of a sense (however false it may be) of more security.

Keep up the great work! You really need to add the Digg button to your articles on urbansurvival.com"

I've thought about a Digg button, but the problem I have is that Digg buttons work best (or only?) on pages that are dynamically renamed/ renumbered  every day.  I set UrbanSurvival up so that you could always bookmark www.urbansurvival.com/week.htm and get the most current content and no writing a redirect page, or things like that.

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Coping: Canadian Advice

This from a reader in Canada is interesting

"Hi George,

New subscriber from Canada here. Not to sound corny, but thanks for your column. After reading "Twilight in the desert", "The long emergency" and "The creature form Jeckyll Island", a few too many pieces started to click together in my mind to keep on blissfully ignoring what's coming ahead. (Had a nice little meltdown actually *g*) Sadly though, it seems that news in Canada are part of the same LameStream as the US and Canadian information on this sort of thing seems to be both rare and marginalized. After a few years of admin work in the financial "industry", I know that any major downfall of US markets is going to hit us hard here. (Like they say here, when the US sneezes, Canada gets a cold.) So thanks for the column and all those nifty links that allow me to form an opinion from actual facts and keep in touch with the "real" reality instead of the illusion of it being churned out by the "News".

Anyhoo, the reason I'm writing today is to share some of the "coping" things I have found in my quest for positive action in regards to the above and that may interest some of your readers.

Food: one website I like (in spite of a slightly religious slant) is http://hillbillyhousewife.com/  This site list nutritionally balanced menus for a family of four, one on 70$ a week and an "emergency" plan on 45$ a week. Moreover, the site has shopping lists, recipes, shopping tips and nifty ideas for home made version of pricier food items. There's even a breakdown of what kitchen work needs to be done each day, which I think will help busy families who never gave any thoughts to baking their own bread before (That's when the religious slant comes out, in things like "punch the dough when you get back from church", etc... It is far from offensive though. I didn't mind it even though I'm proudly atheist. *g*)

Looking for low cost lunches while slaving away at your day job a little longer? http://www.cleverdude.com/content/frugal-lunch-by-clever-dudette/ 

Food storage: http://www.survival-center.com/foodfaq/ff1-toc.htm  Lots of good info here.

Household items: http://makingbysaving.com/phpBB/index.php  This site has recipes for homemade household cleaners and tips for saving money on daily use items.

Scared of things you don't understand? Looking for free education?: http://lifehacker.com/software/education/technophilia-get-a-free-college-education-online-201979.php 

Sanity: http://peakoilblues.com/  Because sanity is important too! *g* (I guess I should include https://mozy.com/home  under the sanity category too, one never has too much backup!)

And my all time favorite: http://www.backwoodshome.com/article_index.html  They have articles on everything from voltaic energy set ups and how to butcher a chicken to preserving apples through the winter and re-using sweater to make mittens.

I hope this will help someone out there.

Thanks again and keep up the good work!"

Along the same lines (or similar) to Backwoods is Countryside and Small Stock Journal.

The time monks also sent in a link, but it wasn't working this morning - basically it was a picture of a family of four in each of many countries showing what it cost to feed them.  If they find the link (or the source) we'll get it up here because it was really interesting that the price of eating seemed to be directly proportioned to the number of processed/packaged foods in the diet...

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Thursday November 22, 2007

Thanksgiving Worries

Most of America uses worry time today to ponder such things as "I wonder if the dressing will be moist enough?" and "Should I give it another 20-minutes, just to be sure?" or my personal worries "Is Lowes open this morning so I can pick up a dozen 2 by 4's and another 10-pounds of construction screws I need?"

The most addicted to the 'paper chase' however, will spend today looking at charts and graphs and yesterday's further 211 point slide in the Dow.  Asian markets, already hard hit this week, managed a sort of 'hold the line' while Japan's Nikkei was up about 51 points.

Europe, which doesn't celebrate Thanksgiving ( and is polite enough not to remind anyone that the US was settled by could be argued to be religious extremists...) was having a small bit of an upside bounce when I last checked, but click here for the latest.

I concluded, about halfway through the first cup of coffee that worry today falls into two categories on holidays: Good worries and bad.  The good are things like "I wonder if the cherry pie should have another 2-minutes?" while the bad are "Will there be (false flag) terror to pump up political equity and divert attention from the dollar's slide?"

In keeping with the linguistics boys, we'll try to stay focused on the pie; things actionable are what count.

Food Shortages

I try to remember to send a few bucks here and there throughout the year to the local food bank.  Reason?  People need to eat all year, and with foreclosures going up, and employment officially unchanged, the demand sure seems to be growing.  And the story is much the same all over the country.

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Where America's values get all sideways (and sorry to whine about this) is where we have families that feel some kind of obligation to buy 12-year olds (and under) cell phones and don't send money to their local food bank every month.  I guess you can tell who's susceptible to 'fear marketing' and who's thinking like independent humans, huh?

Besides why not have a national age limit on cell phones, just like we do for driving?  After all, a kid with a cell phone can get into more trouble than with a car in many regards...

Birthday

My eldest daughter Denise up in Seattle turns 30 today. I don't know who turning 30 is rougher on: the child or parent...

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Denise  called Wednesday, not waiting for Black Friday, to tell Dad she's all amped about a new electric car she wants to buy, an Aptera. "Don't see a total price, just the $500 down form," advised Dad the Grinch.  "And, did you see where it says "..only available to those who reside in California"?  "I don't care, I want one - I'll just get a PO Box in California...."

Whatever.  And a long enough extension cord to get it from Northern California to Seattle?

A reformed 911 pilot, Dad's pick of the electrics is still the Tesla Roadster. 0-60 in under four seconds is my kind of ride...or lacking a 911 or a Tesla, I'm stuck with my Kubota.  It's OK, as I don't think Porsche or Tesla offers a loader bucket or two speed PTO option...

Nevertheless, I'll keep dropping hints that a nice used 911 turbo (anthracite, please) would make a fine "thankful reader" present for me - although I expect my hints will yield the same results as Denise is getting from asking Dad to consider a new Aptera for her...

Challenge Dismissed

The last challenge to the re-election of Pakistan's president Musharraf has been dismissed.  Quick!  Look surprised.  Who appointed the court?

Restrictions on Travel

Not only a rail strike in France, but now sabotage to boot.

Headline Dissonance

Alright, here's today's example of headlines that conflict and cause cognitive dissonance:

"18 Sunnis killed south of Baghdad"

"US reports 'phenomenal' drop in Iraq violence"

Looking Ahead

Some 'predictive' sounding headlines:

"This year, shop till prices drop"

"Economic forecast Index sees Weakness Into 2008"

"Home sales, prices, decline nationwide"

Home Computing

FireFox 3.0 has been rolled out - for those who live on the "bleeding edge" of technology.  Meantime, if you're on FireFox 2.0.0.9, there should be a security patch out  (2.0.0.10) next week to plug a potential hole.

Notes on the Modern Warrior Culture

I suppose we could peg this as something from our "Let's Regulate Everything" file, but I think it goes deeper.  The headline is "Lawmakers Attack Video Game Rating, Seek Review" and it goes on with the sub headline: "The lawmakers cite a psychologist who claims Nintendo's Wii and Manhunt 2 combine to teach players the behavioral sequence of killing. "

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Most folks don't spend much time thinking about how warfare has been institutionalized into culture.  However, when you think about it, most of the sports world - and government - is based on:

• Hitting someone (Boxing)

• Hit something with a stick (Golf)

• Hit something with a club (Baseball)

• Keep away and don't share (Basketball)

• Keep away and don't share something cold (Hockey)

• Push people and injure them (Football)

• Steal from the less fortunate (Taxes)

• Steal people's savings (Inflation)

Against this background, I'm appalled that the do-gooder lawmakers would seek to attack what's a very small corner of the warrior culture in America.  Video games to kill?  Shoot, partner, that's the stuff that leads to gang membership, guns going to school, and ultimately, to plenty of trigger pullers for national wars for oil...

Besides, it would put a crimp in my video game script for something I call "Politiks" which involves an male avatar running for high office, accompanied by a wife and family and how the avatar makes just the right deals with the right shady people and drug dealers, and then has those who get in the way quietly 'offed' to make sure he survives. 

Yeah, don't be regulating violence in video games, they're just a reflection (not even to the extreme) of the warrior culture we think so little about.

But somewhere in here is a million dollar idea:  How about a game called "Trauma Doctor" where patients are shown on a screen in various bloodied conditions from accidents and what have you, and your job is to save them by applying the right lifesaving techniques in the right order?

Or, a management game with a more meaningful outcome than just being an xxx tycoon: Food Bank Director where the goal is to feed as many people as possible, for example.

Personally, I hope there's a market for 'positive' games, but as a half-step, why not take an existing game, and I'll use "Deer Hunter" as an example here, and expand it into a more socially conscious game?  The task could be set up as "You're a very special kind of deer hunter: You job is to cull a herd of deer of those infected with Chronic Wasting Disease..."

The basis of this kind of game is far from fictional.  Come to think of it, I guess Doom isn't fictional either.

Wednesday November 22, 2007

Release Period Beginning:

Jim Rogers: Dump the Buck

We might get a short term rally, but the dollar is in serious trouble figures legendary commodities trade Jim Rogers.  Watch the video - he tells it like it is!  On Ben Bernanke, for example:  "The man doesn't even understand economics and that's terrifying..."  Wow - sounds like our outlook on things...death of the dollar goes mainstream.

Scott McClellan: Revelations

A day or so early, but this is what a release period is all about: "release" and quite specifically, the release of a new book by former White House Press Secretary Scott McClellan who blames George Bush for the Valerie Plame leak deceit.

Headlines are already asking will McClellan be John Dean to Bush's Richard Nixon?  This is one of those stories that was around early yesterday and in corpmedia it was sort of buried for a few hours, but this one is proving too hot to hide.  Blaming the president and his (then) PR man for deceit is not something to be taken lightly.

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But, that's not the only sign of a release period getting underway.  Gnaw on this chart a bit:

With the dollar up a tad in the early trading and global markets down, a drop of the Dow by 100 points or so today would not come as a surprise. 

My friend Robin Landry is watching two 'lines in the sand' for the current decline: 12,815 and 12,517.14 (the August low).  Take these out and the big elevator drop which I'm expecting by late next week pulls into view.

If the 1929 track were to play out perfectly, we would close today at 12,922, skip tomorrow, and then Friday we would have a bounce of the 12,517 area.  That rally would take us to 12,731, and then we'd be in 'thousand point down day' risk during the first week of December.

But, naturally, history won't replay so conveniently so don't go trading on this - just tuck it away as something to ponder.  Nothing says we can't test that 12,517 area today.  Or never.

Seems just obvious as hell to me that we are entering into a high risk period and given that linguistically this release period will be largely financial in its orientation, it's something to keep a sharp eye on.

War Money War

Meantime, the Decider and the Congress continue debating a military spending bill.  The Bush camp doing the layoff fear mongering and the dems trying to limit the never-ending flow of funds into the Bush Wars.

And the Point is...?

You know a country is at a civil war/rebellion flash point when lawyers take to the streets - as they are doing lately in Pakistan.  But, with a US backed Musharraf, and US control of Pakistan's nukes, and a Musharraf stuffed supreme court in the country, I'm not sure what the point is?

I mean other than revealing that some US media sat on the story about how $100 million of our tax money has been spent on a secret program to keep US control of Pakistan's nukes - which now that it's common knowledge, will no doubt further erode the image of the Musharraf government which is being seen more and more as a US proxy in the region.  Wonder why?

And the 40 people killed overnight by Pakistan troops: "Rebels" or honest political opposition to Musharraf?  Seems an important question that won't (or can't) be asked...

Oversold

The UN says that yes, it incorrectly over estimated the number of HIV/AIDS cases in the world, but says it was not intentional.   Wonder if similar confessionals will come about global warming somewhere down the road?

2nd Amendment Case

The US Supreme Court has decided to hear a case where an appeals court sturck down a 31-year old band on handguns in Washington DC.

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Our take: Judges who think the second amendment is archaic demonstrate an inability to read what's clearly spelled out in the Constitution and should be removed from office and replaced with folks who can read plain English.  "Shall not be infringed" is pretty damn clear.  And as for the militia aspect: If a home invasion is attempted, every family member is instantly a member of the family militia...

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With school shootings already happenings on college campuses (and not just in the USA), a group of more than 8,000 college students nationally want to be able to carry firearms to school.

Markets

One of my brokerage accounts sent me this handy dandy list of what's open and when today through Friday:  Worth sharing and complied, says the email, from usually reliable sources but no responsibility for errors/omissions etc......

Wednesday, November 21

CBOT Floor: 12:00 close: Financial, Agricultural contracts 12:30 close: Mini-sized Ags Regular close: Equity and metals contracts

eCBOT: 12:00 close: Agricultural contracts 12:30 close: Mini-sized Ags 1:00 close: Financial contracts Regular close: Equity, metals, and DOW-AIG contracts Overnight eCBOT closed

CME Floor: 12:00 close: Foreign exchange, Commodity and interest rate contracts 12:02 close: Commodity options Regular close: Equity, GSCI, weather, and housing contracts

GLOBEX: Regular close: Foreign exchange, Interest rate, Equity, NYMEX/COMEX, commodity, weather, and housing contracts

Nymex/Comex Floor: Regular close

CME Globex and Clearport: Regular close

NYBOT/ICE Regular close

OneChicago Regular close

NYSE Regular close Thursday, November 22

CBOT Floor: Closed

eCBOT: Closed: Daytime eCBOT Closed Regular evening opening: Financial, Equity, agricultural, metals, and DOW-AIG contracts

CME Floor: Closed

GLOBEX: Regular evening opening

Nymex/Comex Floor: Closed

CME Globex and Clearport: Regular close

NYBOT/ICE Closed

OneChicago Closed

NYSE Closed Friday November 23

CBOT Floor: 12:00 close: Agricultural, Financial contracts 12:15 close: Equity Contracts 12:30 close: Mini-sized Ag contracts Regular close: Metals and DOW-AIG contracts

eCBOT: 12:00 close: Agricultural contracts 12:30 close: Mini-sized Ags and Equity contracts 1:00 close: Financial contracts Regular close: Metals and DOW-AIG contracts

CME Floor: Closed: Dairy and Dairy Spot calls 12:00 close: Foreign exchange, Interest rate, Commodity, GSCI, weather, and housing contracts 12:02 close: Commodity Options 12:15 close: Equity Contracts

GLOBEX: 12:00 close: Commodity, GSCI, weather contracts 12:15 close: Foreign exchange, Interest rate, Equity and Housing contracts

NYMEX/COMEX Floor: Regular close

CME Globex and Clearport: Regular close

NYBOT/ICE Regular close

OneChicago Regular close

NYSE Floor: 1:00 close *All times listed in Central Daylight Time

Our thanks to JB Slear at www.fortwealth.com and his clearing firm PFG for the heads up - a sort of complicated path, huh?

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Tuesday November 20, 2007

Special Update: Fed Minutes
Some rally this morning, huh?  But did you notice how things cooled off when the Fed minutes were about to pop?  We'll, they're out and we've got 'em:

http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20071031.pdf

"The information provided to the Committee on the  first day of the meeting, prior to the release of the advance estimates of the third quarter national income and product accounts, indicated that economic activity expanded at a solid pace in the third quarter. Consumer spending rose more strongly after a tepid increase in the second quarter, and the pace of expansion of business outlays for equipment and structures remained reasonably solid. Manufacturing posted a sizable gain for the third quarter as a whole. In contrast, the slump in residential investment intensified during the third quarter, at least partly because of ongoing disruptions in the markets for nonconforming mortgages. The average monthly gain in private employment also slowed significantly. Headline inflation eased during the third quarter, reflecting a decline in energy prices; core inflation continued to be moderate.

Employment increased more slowly in the third quarter than in the first half of the year. Private payroll employment registered a considerably smaller average monthly gain; employment in residential construction, manufacturing, and industries related to mortgage lending continued to decline, but most service producing industries added jobs at a moderate pace. With gains in employment smaller and the workweek flat, the growth of aggregate hours of private production or nonsupervisory workers stepped down from its secondquarter pace. The labor force participation rate was unchanged, on average, in the third quarter, and the unemployment rate ticked up to 4.7 percent in September.

Industrial production changed little in August and September after having posted solid advances in June and July. Manufacturing output expanded in the third quarter overall at about the same pace as in the second quarter but declined modestly on net in August and September. During those two months, production was damped by declines in the output of motor vehicles and parts. In addition, output of construction supplies and products fell, likely reflecting the ongoing decline in residential investment. Meanwhile, production in the hightech sector rose at a moderate rate.

Consumer spending was well maintained in August and September. Motor vehicle sales improved, and real spending on other goods posted solid gains in both months. Real outlays on consumer services were strong in August because of a weatherinduced jump in energy services. Solid increases in nominal wages and salaries and lower headline inflation led to robust gains in real income over the summer. However, other factors affecting consumer spending were mixed. Shortterm interest rates dropped and stock prices rose, on balance, after August. By contrast, house prices continued to decelerate, standards on consumer and mortgage credit tightened after midsummer, and the turmoil in financial markets that started in the summer likely exerted some restraint on consumer spending. Moreover, measures of consumer confidence had declined in recent months.

The housing downturn deepened as sales of new and existing single family homes continued to fall. Deterioration in nonprime mortgage markets as well as higher mortgage interest rates and tighter lending conditions for prime jumbo loans since earlier in the year appeared

to be restraining housing demand. Forward looking indicators, including an index of pending home sales and adjusted single family permit issuance, continued to point to a further slowing in housing activity over the near term. Singlefamily housing starts declined significantly over August and September. Nonetheless, with singlefamily home sales continuing to sag, inventories of unsold homes remained quite elevated. In the multifamily sector, starts declined sharply in September; however, the thirdquarter reading remained within the fairly narrow range observed over the past decade.

Orders and shipments of nondefense capital goods excluding aircraft rose on average over August and September. In the hightech category, orders and shipments of computers and peripherals posted robust gains over the same period. Shipments of communication equipment also rose in August and September, but orders were little changed on balance over the same period. Outside the technology sector, shipments of nondefense capital goods excluding aircraft increased at a solid rate over August and September but orders declined in August and were flat in September. Sales of medium and heavy trucks leveled off in the third quarter after a sharp drop in the first half of the year. Domestic outlays for aircraft likely stepped down somewhat in the third quarter. Nonresidential building activity remained vigorous through August after having posted very strong gains in the second quarter; anecdotal evidence through early October indicated that the recent turbulence in commercial credit markets had done little to slow the pace of commercial construction. More generally, surveys of business conditions continued to point to further nearterm gains in spending, although reports from business contacts indicated that some firms had marked down their capital spending plans.

Data on the book value of business inventories through August suggested that real nonfarm inventory investment excluding motor vehicles moved down in the third quarter after having risen at a moderate pace in the second quarter. The ratio of bookvalue inventories to sales in the manufacturing and trade sector excluding motor vehicles, which was available through August, remained well below the elevated values seen around the turn of the year. Purchasing managers, on average, viewed the level of their customers’ inventories as about right in September.

The U.S. international trade deficit narrowed in August as exports increased and imports decreased. Goods exports were boosted by a jump in exports of agricultural products and of gold, which more than offset a decline in exports of other goods. Exports of automotive products fell back sharply after a surge in July. Exports of capital goods contracted slightly, led by a drop in aircraft exports. Exports of semiconductors declined, while exports of computers were about flat. On the import side, the decline was concentrated in goods; service imports were flat. Higher imports of oil and of capital goods, particularly computers and semiconductors, were more than offset by lower imports of automotive products, consumer goods, and industrial supplies excluding oil.

Indicators of economic activity in the third quarter for advanced foreign economies were solid on balance. In the euro area, production and sales picked up in the third quarter from their secondquarter levels. However, recent survey data, including the purchasing managers’ index for the service sector in the euro area, pointed to a possible slowing in the pace of growth. Likewise, notwithstanding a strong preliminary estimate of thirdquarter GDP growth in the United Kingdom, more recent surveys pointed to some softening. Recent Canadian data were mixed, with relatively strong employment growth and some weakness in retail sales. In contrast, Japan’s retail sales and exports rebounded in August, and the October Tankan survey seemed to suggest that the second quarter’s sharp contraction in investment was temporary.

In emergingmarket economies, recent information, mostly through August, gave no signs that the turmoil in financial markets was having a significant negative effect on real economic activity. In emerging Asia, activity appeared to have remained robust, although growth slowed from its elevated secondquarter pace. Economic indicators for Mexico pointed to moderate growth in the third quarter. In South America, activity was strong, boosted by high prices for commodities and, in Argentina and Venezuela, by expansionary macroeconomic policies. Food prices continued to be a major source of inflationary pressures in emergingmarket economies, and Chinese authorities took several steps aimed at quelling rising prices.

After having risen rapidly in the first half of the year, headline consumer prices decelerated considerably over the summer, largely because of a fall in energy prices. Over September and October, gasoline prices appeared to have risen only moderately despite a jump in crude oil costs. Consumer food prices posted further sizable

increases in August and September and continued to run well above the change in core prices. Core consumer price inflation remained moderate in August and September and, on a twelvemonth change basis, was down noticeably from a year earlier. Core goods prices fell over the year ending in September after having risen little over the preceding year; noticeable decelerations occurred in the prices of apparel, prescription drugs, and motor vehicles. In addition, increases in owners’ equivalent rent slowed noticeably, while rent inflation remained about the same as a year earlier. The producer price index for core intermediate materials edged up in September. The twelvemonth change in that index stepped down considerably from last year, in part because of softer prices for a variety of energyintensive and constructionrelated items. Household surveys indicated that median yearahead inflation expectations inched down in September and October to about the level observed in the first quarter, and longerterm inflation expectations slipped to their lowest level in two years. Average hourly earnings posted a moderate increase over the twelve months ending in September.

At its September meeting, the FOMC lowered its target for the federal funds rate 50 basis points, to 4¾ percent. The Board of Governors also approved a 50 basis point decrease in the discount rate, to 5¼ percent, leaving the gap between the federal funds rate target and the discount rate at 50 basis points. The Committee’s statement noted that, while economic growth had been moderate during the first half of the year, the tightening of credit conditions had the potential to intensify the housing correction and to restrain economic growth more generally. The Committee indicated that its action was intended to help forestall some of the adverse effects on the broader economy that could otherwise arise from the disruptions in financial markets and to promote moderate growth over time. Readings on core inflation had improved modestly during the year, but the Committee judged that some inflation risks remained, and the Committee planned to continue to monitor inflation developments carefully. The Committee further noted that developments in financial markets since the last regular FOMC meeting had increased the uncertainty surrounding the economic outlook. Accordingly, the Committee would continue to assess the effects of these and other developments on economic prospects and remained ready to act as needed to foster price stability and sustainable economic growth.

The expected path for monetary policy as inferred from futures markets declined in the wake of the September policy action, as many investors were surprised by the magnitude of the reduction in the target rate. Over the intermeeting period, many investors came to expect that the Committee would reduce the target federal funds rate at its October meeting; in addition, the anticipated policy path further ahead moved down a bit more, on net, over the remainder of the intermeeting period, apparently in response to heightened concerns among investors about economic growth.

Early in the intermeeting period, the functioning of shortterm funding markets improved somewhat, but conditions in these markets remained strained. The effective federal funds rate was very close to the target, on average, but the average absolute daily deviation of the effective rate from the target and the intraday standard deviation remained elevated. Credit spreads declined in the commercial paper and term interbank funding markets but stayed well above longerterm norms. Liquidity in the Treasury bill market was poor at times. Corporate bond spreads narrowed somewhat, leaving private yields a little lower. Nonfinancial bond issuance was robust; speculativegrade offerings increased markedly. The credit quality of most households remained strong, but delinquency rates on subprime mortgages climbed further. Securitization of nonconforming mortgages remained limited, and spreads on jumbo mortgages relative to conforming mortgages stayed high. Twoyear Treasury yields declined roughly in line with the lower expected policy path, while yields on tenyear Treasuries were little changed, on net. TIPSbased inflation compensation was about unchanged on balance over the intermeeting period despite a sharp rise in spot oil prices. Stock prices jumped early in the intermeeting period in response to the cut in the target federal funds rate and some favorable economic news but later dropped back, leaving broad indexes up only a bit on net. The foreign exchange value of the dollar against other major currencies declined notably.

Debt of the domestic nonfinancial sectors was estimated to have expanded slightly more quickly in the third quarter than in the previous quarter. Despite evidence that bank lending standards and terms had tightened over the previous three months, business debt was still rising strongly, reflecting a continued surge in commercial and industrial (C&I) lending by banks and robust issuance of investmentgrade bonds. The expansion of business loans was apparently due in part to financings for leveraged buyouts that underwriters could not syndicate to institutional investors. Household mortgage borrowing was estimated to have decelerated again in the third quarter. M2 increased significantly more slowly in September and October than the rapid pace observed in August, when the financial market turmoil apparently drove investors to the safety of M2 assets. Inflows to retail money market funds and small time deposits were especially strong in September and October; small time deposits were apparently boosted by the attractive rates that banks were offering in order to help fund their expanding loan portfolios.

In the forecast prepared for this meeting, which was formulated prior to the release of the advance estimates of the thirdquarter national income and product accounts, the staff revised up its estimate of aggregate economic activity in the third quarter from its forecast presented at the September meeting in light of available indicators that suggested that consumer spending, business investment, and exports were stronger than previously expected. Nonetheless, the staff expected real GDP growth to be considerably slower in the fourth quarter, reflecting steepening declines in residential construction, reductions in the pace of motor vehicle production, and a smaller contribution from net exports. Looking forward, the staff expected residential investment to remain weak in 2008 with modest declines in house prices. In addition, the staff continued to expect the stress in credit markets and the appreciably higher oil prices indicated by futures markets to restrain spending by businesses and consumers, although the lower foreign exchange value of the dollar suggested some boost to net exports. On balance, real GDP growth for 2008 was projected to slow to a pace a bit below that of its potential, and unemployment was expected to creep up slightly. For 2009, the forecast called for real output growth to step up to a pace slightly above potential as the drags on economic activity exerted by the contraction in residential investment and financial strains were expected to abate. The staff’s forecast for core PCE inflation was little changed from that presented at the September meeting because favorable incoming figures on core PCE inflation were offset by expectations for some limited feedthrough into retail prices of recent increases in energy prices and for slightly less easing in resource utilization. The forecast for headline inflation was in the same range as that for core inflation in 2008 and 2009, reflecting expectations that energy prices would level off and then turn down and that increases in food prices would slow to a pace more in line with core inflation.

The advance data on the national income and product accounts for the third quarter, which were released on the morning of the second day of the FOMC meeting, indicated a stronger increase in real GDP than the staff had forecast, mostly because inventory investment was estimated to be higher than projected by the staff. The staff interpreted this information as suggesting some upward revision to its estimate of output growth in the third quarter, a small downward revision to its forecast of growth in the current quarter, and no significant change to its forecast for coming quarters.

In conjunction with the FOMC meeting in October, all meeting participants (Federal Reserve Board members and Reserve Bank presidents) provided annual projections for economic growth, unemployment, and inflation for the period 2007 through 2010. The projections are described in the Summary of Economic Projections, which is attached as an addendum to these minutes.

In their discussion of the economic outlook and situation, and in the projections that they had submitted for this meeting, participants noted that economic activity had expanded at a somewhat faster pace in the third quarter than previously anticipated and that there was scant evidence of negative spillovers from the ongoing housing correction to other sectors of the economy. Conditions in financial markets had improved since the September FOMC meeting, but functioning in a number of markets remained strained. Even with some further easing of monetary policy, participants expected economic growth to slow over the next few quarters, reflecting continued sharp declines in the housing sector and tighter lending standards and terms across a broad range of credit products. The slowing of growth was likely to produce a modest increase in the unemployment rate from its recent levels, leading to the emergence of a little slack in labor markets. Looking further ahead, participants noted that economic growth should increase gradually to around its trend rate by 2009 as weakness in the housing sector abated and stresses in financial markets subsided. With aggregate demand showing somewhat greater than expected strength in the third quarter and little evidence of significant spillovers from the housing sector to other components of spending, participants viewed the downside risks to growth as somewhat smaller than at the time of the September meeting, but those risks were still seen as significant. Participants generally expected that inflation would edge down over the next few years, a projection consistent with the recent string of encouraging releases on core consumer prices, futures prices pointing to a flattening of energy costs, and the anticipated easing of pressures on resources. Nonetheless, some upside risks to inflation remained, reflecting in part the potential feedthrough to inflation expectations of increases in energy and import prices.

Financial market functioning was judged to have improved somewhat since the previous FOMC meeting, but the situation in a number of markets remained strained, and credit market conditions were thought likely to weigh on economic growth over coming quarters. In light of some improvement in the commercial paper and leveraged loan markets over the intermeeting period, participants were somewhat less concerned that banks would not have sufficient balancesheet capacity to absorb large volumes of assets. Conditions in corporate credit markets also had improved in recent weeks, and most businesses were apparently having little difficulty raising external funds, as evidenced by strong issuance of investmentgrade corporate bonds, a pickup in speculativegrade issuance, and surging C&I loans. Markets for nonconforming mortgages, by contrast, remained disrupted. Meeting participants also mentioned that while financial market conditions had improved, the functioning of some markets remained somewhat impaired. Indeed, several participants noted some relapse in financial conditions late in the intermeeting period. Moreover, unusual pressures in funding markets persisted. Participants generally viewed financial markets as still fragile and were concerned that an adverse shock—such as a sharp deterioration in credit quality or disclosure of unusually large and unanticipated losses—could further dent investor confidence and significantly increase the downside risks to the economy. Participants were also concerned about a potential scenario in which unexpected economic weakness could cause a further tightening of credit conditions that could in turn reinforce weakness in aggregate demand.

In their discussion of individual sectors of the economy, participants noted that the recent declines in housing activity—while substantial—had largely been anticipated. Nonetheless, the potential for significant further weakening in housing activity and home prices represented a downside risk to the economic outlook. Most participants pointed to the deterioration in nonprime mortgage markets as well as higher interest rates and tighter credit standards for prime nonconforming mortgages as factors that had exacerbated the deterioration in housing markets, and they noted that these developments could further limit the availability of mortgage credit and depress the demand for housing. Some participants also pointed to downside risks to the housing market stemming from the large volume of substantial upward interestrate resets that were likely on subprime mortgages in coming quarters, which could lead to a faster pace of foreclosures in the near term, thereby intensifying the downward pressure on house prices.

Participants generally agreed that the available data suggested that consumer spending had been well maintained over the past several months and that spillovers from the strains in the housing market had apparently been quite limited to date. Nevertheless, a number of participants cited notable declines in survey measures of consumer confidence since the onset of financial turbulence in midsummer, along with sharply higher oil prices, declines in house prices, and tighter underwriting standards for home equity loans and some types of consumer loans, as factors likely to restrain consumer spending going forward. Moreover, anecdotal reports by business contacts suggested a softening in retail sales in some regions of the country. Participants expressed a concern that largerthanexpected declines in house prices could further sap consumer confidence as well as net worth, causing a pullback in consumer spending. All told, however, participants envisioned that the most likely scenario was for consumer spending to continue to advance at a moderate rate in coming quarters, supported by the generally strong labor market and further gains in real personal income.

Meeting participants noted that capital expenditures had grown at a solid pace in recent months and that the financial turmoil generally appeared to have had a limited effect on business capital spending plans to date. Nevertheless, business sentiment appeared to have eroded somewhat amid heightened economic and financial uncertainty, potentially restraining investment outlays in some industries. However, participants noted that conditions in corporate bond markets had improved since the September FOMC meeting, and that credit availability generally appeared to be ample, albeit on somewhat tighter terms. Participants judged that moderate growth of investment outlays going forward was the most likely outcome. A number of participants saw downside risk to the outlook for nonresidential building activity, reflecting elevated spreads on commercialmortgagebacked securities and a further tightening of banks’ lending standards for commercial real estate loans.

Data on economic growth outside the United States indicated that the global expansion, though likely to slow somewhat in coming quarters, was nevertheless on a firm footing. The continued strength of global growth and the recent decline in the foreign exchange value of the dollar were seen as likely to support U.S. exports going forward.

Readings on core inflation received during the intermeeting period continued to be generally favorable, and meeting participants agreed that the recent moderation in core inflation would likely be sustained. The slower pace of economic expansion anticipated for the next few quarters would help ease inflationary pressures. Nonetheless, participants expressed concern about the upside risks to the outlook for inflation. The recent increases in the prices of energy and other commodities, along with the significant decline in the foreign exchange value of the dollar, were cited as factors that could exert upward pressure on prices of some core goods and services in the near term. Increases in unit labor costs also could add to inflationary pressures. Moreover, participants expressed concern that some measures of inflation compensation calculated from TIPS securities had risen this year, although they viewed inflation expectations generally as remaining contained. Participants were concerned that if headline inflation remained above core measures for a sustained period, then longerterm inflation expectations could move higher, a development that could lead to greater inflation pressures over the longer term and be costly to reverse.

In the Committee’s discussion of policy for the intermeeting period, members discussed the relative merits of lowering the target federal funds rate 25 basis points, to 4½ percent, at this meeting or awaiting additional information on prospects for economic activity and inflation before assessing whether a further adjustment in the stance of monetary policy was necessary. Many members noted that this policy decision was a close call. However, on balance, nearly all members supported a 25 basis point reduction in the target federal funds rate. The stance of monetary policy appeared still to be somewhat restrictive, partly because of the effects of tighter credit conditions on aggregate demand. Moreover, most members saw substantial downside risks to the economic outlook and judged that a rate reduction at this meeting would provide valuable additional insurance against an unexpectedly severe weakening in economic activity. Many members were concerned about the stillsensitive state of financial markets and thought that an easing of policy would help to support improvements in market functioning, thereby mitigating some of the downside risks to economic growth. With real GDP likely to expand below its potential over coming quarters, recent price trends favorable, and inflation expectations appearing reasonably well anchored, the easing of policy at this meeting seemed unlikely to affect adversely the outlook for inflation. A number of members noted that the recent policy moves could readily be reversed if circumstances evolved in a manner that would warrant such action.

The Committee agreed that the statement to be released at this meeting should indicate that economic growth was solid in the third quarter and that strains in financial markets had eased somewhat on balance. Members also agreed that economic growth seemed likely to slow over coming quarters, but that the easing action taken at the meeting—combined with the 50 basis point cut in the target federal funds rate at the September meeting—should help to promote moderate growth over time, although some downside risks to growth would remain. Members felt that it was appropriate to underscore the upside risks to inflation stemming from the recent increases in the prices of energy and other commodities, even though recent readings on core inflation had been favorable. While the Committee saw uncertainty regarding the economic outlook as still elevated, it judged that, after this action, the upside risks to inflation roughly balanced the downside risks to growth.

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive:

"The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its longrun objectives, the Committee in the immediate future seeks conditions in reserve markets consistent with reducing the federal funds rate to an average of around 4½ percent."

The vote encompassed approval of the statement below to be released at 2:15 p.m.:

"The Federal Open Market Committee decided today to lower its target for the Federal funds rate 25 basis points to 4½ percent.

Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.

Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth."

Votes for this action: Messrs. Bernanke, Geithner, Evans, Kohn, Kroszner, Mishkin, Poole, Rosengren, and Warsh.

Votes against this action: Mr. Hoenig.

Mr. Hoenig dissented because he believed that policy should remain unchanged at this meeting. Projections for the U.S. and global economies suggested that growth was likely to proceed at a reasonable pace over the outlook period. To better assure that outcome, the FOMC had moved rates down significantly at its September meeting. At this meeting, inflation risks appeared elevated and Mr. Hoenig felt that the target federal funds rate was currently close to neutral. In these circumstances, he judged that policy needed to be slightly firm to better hold inflation in check. Going forward, if the data suggested the Committee needed to ease further, it could do so. He also recognized that liquidity remains a nearterm challenge and that the Federal Reserve would be prepared to act if needed. Mr. Hoenig saw the risks to both economic growth and inflation to be elevated and preferred to wait, watch, and be ready to act depending on how events developed.

The Committee then resumed its discussion of an enhanced role for the economic projections that are made periodically by the members of the Board of Governors and the Reserve Bank presidents. At this meeting, participants reached a consensus on increasing the frequency and expanding the content of the projections that in the past have been released to the public in summary form twice a year. They agreed to publish with the minutes a summary of participants’ economic projections made for this meeting and to release a press statement describing the plan for the future. The release of more frequent forecasts covering longer time spans and accompanied by explanations of those forecasts was seen as providing the public with more context for understanding the Committee’s monetary policy decisions.

It was agreed that the next meeting of the Committee would be held on Tuesday, December 11, 2007.

So will they have to lower again?  Almost certainly.  Will that cream the dollar?  Oh yeah.  But, this is Fed in a Box time as the market decline from now to the end of January could be severe.  A few minutes after the decision, the market was down about 60 points by the Dow.  Could it be this morning was the Thanksgiving Holiday rally?

Thanksgiving, Happy Optional

I might as well hang out a sign right now that reads "We had bound to bounce from somewhere".  With the futures up a tad, we very well could see a shortterm bounce that will make a few of the wellheeled feel good.  But, don't worry, the smiles may be temporary.  There are millions of Americans who are fed up with what the linguistics team cited over a year ago as emerging "cognitive dissonance"; in other words, what the eyes and the checkbook are encountering is nothing like the political "reality" being sold by the Powers That Be in corpgov.

Just to give you a sense of how my inbox reads these days, I mean besides the antibank run moves of major banks to prevent you from moving 'x' number of dollars out by wire transfers over 'y' numbers of days, or so much per month (runs can happen, see Northern Rock story); here's a dandy with the subject line:

"No Kidding: I'm Mad as Hell

Hi George: The war on the middle class is becoming more obvious each day. The 2008 Social Security benefit will increase 2.3%. How did the Soc Sec Admin. figure a 2.3% increase when we are told by the mainstream media that inflation is 3.9%? I predicted about 3 years ago that if Soc Sec increases continue less than 4% and Medicare deductions rising each year the net benefit result will be in the minus column instead of plus. In my own particular case for 2008 my total increase will be 41 cents more than this year after INCREASE payments for Medicare, Medicare Drug Plan D, and supplemental insurance premiums. My wife's increase amounted to 59 cents. With inflation at 11% + the dollar falling and Fed interest rates lower it appears we will heading toward the poverty level. Any thoughts or comments George???.. Happy Thanksgiving!

["Fight and you may die, run, and you'll live...at least a while. Tell our enemies that they may take our lives, but they'll never take ...OUR FREEDOM" (from Braveheart).. Ron Paul for President"]

Comments?  Well, one has to be very careful here not to criticize the United States (which I don't, as it's the finest set of ideals anywhere, embodied in the dandy Constitution and all) but being critical of corpgov and the banksters is a different matter;  the threatened HR 1955 which would make dissent a crime is pretty much a spoton hit for the linguistics team which has us presently in an Americanized version of a pogrom, although directed at Constitutional believers rather than a religious or ethnic group.  So I need to speak carefully here.

The problem presently faced by government is this:  The US dollar as been "found out" by investors all over the world who have awakened (and are still doing so) to the idea that the Buck is backed by little more than more paper.  Gone are the words "Full Faith and Credit" of the US government off our currency, and what remains is the assertion "This note is legal tender for all debts public and private".  "Sez who?" many are asking.

What's got the banksters scared (although the futures indicate a bounce at the open this morning) is that the Courts seem to be signaling that at least in Ohio, the groups that bought up those collateralized mortgages may not have standing to sue for foreclosure.  While in the shortterm this may mean that some families facing foreclosure may get to stay in their houses a while longer, there are probably teams of lawyers trying to figure a way to drop kick 'em out and get back possession of homes all over the country.

From a policy standpoint, this frames out as "We need to keep the paper moving" and in order to do that "Paper needs to be secured by something more than a promise."

The international money rates are not waiting for appeals, though.  You'll see that this morning the dollar has broken well under 0.68 Euro to .6765 as I write, and as a consequence of that, things priced in other than dollars are showing some strength.  The market bounce today may simply represent a market repricing of the underlying book value of NYSE companies to their equivalent value in Euros, more than any prospect of growth, although HP's announcement beating the street by a tad certainly doesn't hurt.  Gold and Silver go up as well, but then so is oil, which like a party pooper puts a cap on things.

In this week's Peoplenomics report I offered the view that as distasteful and Americans will likely find it, we may be getting hemmed in to a situation where cash (as we know it) will have to be rationed.  The new limits on wire transfers could be viewed as just the first section of fence designed to contain a coming stampede of Americans to assets other than paper. 

My personal outlook for trading over the next week or so would be a rally going into Turkey Day, but then as we return Friday and into next week, (This is not investment advice, only commentary on emerging trends in news stories). I can almost sense a quickening of international withdrawals of support for the dollar.  This, in turn, will push up the metals and oil, which in turn will deepen the expected recession, and put pressure on the Fed to lower nominal rates below the rate of inflation (they already are, depending on your measure of inflation; checkbook or BLS, or reconstructed M3).  From there, we enter the Never Land that Japan got into in the late 1980's and from there the Big Slide is underway.

One has only to look a maximum zoom out on the Nikkei 225 to see it went from about 40,000 in 1990 to 7607 in 2003. 

The occurrence of such an event in the US markets, with a major index like the Dow holding on to only 19% of its price in a 1213 year period could portend, based on our recent 14,280 intraday high argues for 2,715 on the Dow.

The whole UrbanSurvival.com web site (along with the www.peoplenomics.com site) has its roots in my MBA capstone project years back.  A long time ago, (mid to late 1990's) the University of Colorado's Center for a Sustainable Future Longwave Economics group vigorously discussed at incredible length the whole notion of the Kondratiev (Kondratieff) Long Wave theory. 

The Kondratiev Wave argues that regular booms and busts in the economy happen every6 4856 years with a maximal cycle length of about 64 years.

Within this wave, the economy had trough wars, e.g. wars that end significant depressions (take WW II, for example which finally ended the Great Depression) and "Peak Wars" such as the Vietnam war.

My personal position on the Long Wave is that while Kondratiev was right about the wave in general, the key thing to grasp is that the wave length was only stable so long as the underlying socioeconomics were stable.  While his work was based (largely) on grain prices in Europe dating back to the 1200's, since his claims in the mid 1920's, a lot of things have changed.

The two most significant changes have been the world reserve currency had never been through a serious debasement such as the US dollar has, being stripped of its purchasing power by issuing more paper than production dictated (not to mention that 'money' created by debt is never backed out of the system once the debt is repaid).

The other key thing that has changed is that people are living a lot longer.  The average length of the K Wave in early times seems to have been roughly equal to the average lifespan of a human, which is now considerably longer in the West than it was in Middle Ages Europe.  Why couldn't the wave therefore get longer?

On the other hand, there are still economic bounds, beyond which a currency can not be diluted, as a college and I proposed a few years back that a maximal timeline for systematic inflation was likely around 83.5 years.

I hope you can see my fascination with current developments.  On the one hand, I have learned colleagues who hold even now that the K Wave is mechanistic and that the mini Crash of 1987, coming 58 years after the 1929 Crash was the Big One and the wave reset.

There's a further argument to be made that the Gulf War I was actually the trough war that would line up with this scenario, and that because the first trough war didn't really get us out of economic straits, we needed to continue it with a new and improved (larger impact) long wave trough war that we're now in, both as the War on Terror, which serves as a type of Civilian Conservation Corp/WPA in terms of artificially creating government jobs, and the expanded Gulf War II (OIF) which destroys resources and which has also stimulated the domestic economy.

A good argument perhaps, but I don't buy it. The 1987 mini Crash did not cause the widespread repudiation of debt  required to reset the Crash Clock, in my view.  As a result, I argue that the crash clock was just pushed back a bit. 

With our work summarized in the January 2001 report "It Maybe Wasn't Nixon" , my colleague's most revealing chart that forecast a decline from late 1999/early 2000 to 2001/2002, a bounce to 2007 and then a decline from there to as far out as beyond 2012,  seems to be holding up rather well even now.

So while others were arguing for the mechanistic interpretation of Kondratiev, here I am, the People's Economist screaming "It's all about the saeculum!  And bounded by maximal compounded interest rates, you fools!"

Economic waves, are not in my view, mechanistic, any more than the stall speed of a wing is fixed.  Just as a wing's lift is determined by variables such as airspeed, pressure, moisture content, and temperature, so too I argue that Kondratiev Long Waves are functions of currency debasement, average lifespan of participants (the saeculum), and rates of compounding, which as any fool in the fixed income market would have to admit seem to have cyclical problems.

How does all this work out?  Well, if the devotees of mechanistic Kondratiev are right, there won't be a crash, there will only be a modest decline, and the Gulf Wars will be won, with the US resuming its place as world reserve banker.  Nice dream, but I don't think so.

The  more likely scenario, and frighteningly, which seem to fit with the long term linguistic outlook, is that we start to crash now (Nov. 22 is when emotional release rolls around and who knows what the headlines will be that start things off), and by the end of January the economy will have been pretty well kicked down .  In an extreme, I don't rule out bank rules here in the USA and then we get into a small building period and then real global war looms as something that by 2012.5 has caused a real resetting of the economic clockworks.  By survivors.

While nothing would please me more than to be wrong, and to see the mechanists 'win' the argument, my Peak to Crash chart isn't looking especially good right now.  And those two darts I threw at November 29 and 30th as potential 1,000 point loss days seem as good a guess now as they were when I threw them a week or two back.

But don't let any of this bum you out.  It's, as the time monks so aptly put it "Just all a fiction and projections into the future.  Not our fault if the Universe decides to follow our storyline..."

My deflationist pal Jas Jain may be early, but if human lifespan has any influence over  Kondratiev cycle lengths, Jas will only be a little early, which is a whole bunch better than being a little late, to buy bonds and lock in purchasing power.

Our plans?  Eat turkey.  Dressing.  The 'fixing's'.  Make a cobbler.  Drink champagne.  We ought to know too soon who's right: the mechanistic interpretation of Kondratiev, or the Saeculum/maximal compound interest rate integration. 

I don't have to tell you how I'm shading my bets. There's a new theory bouncing around in my head:  In order to count as a proper Trough War, the worst of humanity gets let out of the bottle for a while.  In current technology, that would be nuclear weapons.  With my radiation survey meter in hand, are you willing to place a bet that I won't have use for it between now and 2013? Trough Wars serve two functions: destruction of excess capacity and repudiation of debt & malinvestment.  And sorry, but 1987 doesn't cut it by these measures: We ain't seen nothing yet.

So "Thanksgiving!"  "Happy" optional.

Restriction on Travel

Now...like we need more Nanny State, we have the TSA telling us to 'pack neatly.'  Why bother?  They didn't repack my things neatly...On the other hand, no carryon's sounds like a good idea until you have a laptop with your whole life on it...

Restrictions on Travel, II

France.

Hate Crimes Up

Nearly 8% says a new FBI report.  I can hardly wait for someone to figure out "It's not 'hate crimes', it's affinity group negative identification marketing and retribalization at work..."

Safe Cities, Unsafe Cities

Best: Mission Viejo, California.  Worst?  (Need to ask?) Detroit.

READ

Most Americans are reading less.  Ditch the cell phone and see what happens...

Email of the Day

Here's one:

"Should your government (or mine) impose digital cash, why would you remain a citizen of that state? For that matter, why do you persist in residing in the US when you are informed of the state's fascist tendencies and implementations?

I read your site daily George but the fact that you continue to reside in the US (presumably) without a plan to emigrate in the near term detracts from your otherwise interesting prognoses because it reveals a blind spot that you refuse to address."

America (*the one defined by the Constitution and Bill of Rights) is still the best shot at freedom there is.  I stay to defend both.  When defense is not possible, out comes the strategic retreat plan.

Around the Ranch

Trying to catch up on a couple of subscriptions that I need to set up this morning for Peoplenomics.  Living 'life on the egg timer'; for phone calls.  Consulting clients the exception. \

Finally gave up on making QuickBooks 2006 play on Vista and ordered 2008 and BTW, TurboTax for 2007 is now shipping out of Amazon  so guess where Turkey Day goes?

Monday November 19, 2007

OPEC: Bye Bye Buck

As I see it, the most important story out over the weekend, and thus the one with probably the least amount of LameStreamMedia is the position of OPEC: They are interested in something other than [US] dollars for oil.

Also of note, a group within OPEC including Venezuela and Iran that are for using oil to stop 'exploitations' and 'imperialism.'

Although several subscribers to my in depth analysis at www.peoplenomics.com don't like where this seems to point, can't say that I blame them, I discussed this weekend how the implementation of a 'purely digital' US dollar could ease some of the financial problems looming looming from 'dollar death', allowing policy makers to implement a twotiered currency (domestic and external) while at the same time providing for continuous reductions in purchasing power. (summary here). 

There are compelling reasons for banking interests to more quickly promote the idea of an 'alldigital' currency.  Worrisome: It would quickly get beyond government's remaining control and would put financial interests in charge of everything, not to mention the potential for abuses of individual rights, that then again, that's the whole point of being the Powers That Be, isn't it?

What's billed as an accidental explosion has killed 28 and left 12 missing at a natural gas pipeline in Saudi Arabia.

And while the administration/war hawks keep trying to come up with an excuse to star a shooting war with Iran (like Iraq is not enough of a mess to deal with) we have to note that former Secretary of State Colin Powell says Iran is far from a nuclear weapon.  But hey, don't let that stop the war drums...

Seems Powell is not the only military man thinking Iran is a no go.  The head of the UIS Central Command, Admiral William Fallon has reiterated that there is not a military strategy against Iran.

 I think I've mentioned this before, but worth repeating: If a solid military man like Fallon is suddenly reassigned or retires, that'd be the time to fill up the gas tanks and duck.

With the dollar teetering, and an 'emotional release' period about to start in the next couple of days, we have to wonder whether we'll see a (false flag?) terrorist attack on USA soil, or a major increase in 'terror warnings' in the next few days, just to keep the whole WOT top of consciousness for the sheeple.

In the UK, voters are facing a different kind of problem;  I told you last week how people by 2009 were going to have to answer 'correctly' a 53 question survey before they'd be allowed out of the country (remember the restrictions on travel meme building, right?).  Well, now, one of Gold Seller Banker turned PM Gordon Brown's terror advisors says the plan to increase terrorist suspect detention times from 28days to 56 or 58 is a bad deal.

Not that you should worry if you're in the USA, as habeas corpus is already toast here.

As the Holiday shortened week begins, we note that the price of oil is rising, as no relief for the debt burdened dollar's defrocking seems to have come forth over the weekend, and reports continue that gasoline prices are starting to catch up to the increasing price of crude.

Be watching events over the next couple of days (through Friday/Saturday) for a change in the 'flavor of the news' that will accompany the shift from 'emotional building' to 'emotional release' which may feel like 'emotional outbursts.'

Brazil's New Oil

There's also some discussion of a big oil find of Brazil that could be big enough to bring them into OPEC.  And if you have oil, what do you need to defend it?  Howzabout a nuclear submarine?

If we had just hung on to those subs busted up at Bremerton a few years back, maybe we could have recovered some taxpayer investment...but no one asked me.

Japan Whaling

A Japanese fleet is going out whaling and planning to kill as many as 1,000 of the mammals. So, Japanese cars and HDTV is off my list, as maybe we need to vote with our wallets so their policy makers will hear us...

Diaspora

Millions of people are now homeless in Bangladesh from last week's cyclone, the worst in a decade.  And the death toll is over 2,500 by reports with many more expected.

Rubber Stamp Court

When you're a strongman like president Musharraf in Pakistan, and you are busy putting off elections, seems it's easy enough to reform your supreme court in the country so they will  dismiss challenges to your authority.  Question is: Are they "Prototyping fall 2008 here?" we have to ask.

Getting the Lead Out

The FBI has egg enough to go around as a controversial technique to analyze lead from bullets has been found inaccurate  yet hundreds of people are behind bars and the FBI isn't doing anything to right the potential wrongs, figures a joint Washington Post and 60 Minutes investigation.

Markets

Fiend's Super Bear site has a couple of great links to read while the turkey thaws out:  "Credit Crisis meltdown is a Prelude to Global Economic Depression"  (Sounds like a headline I would write. How about this one: " NY Stock Exchange Contracting Margin Debt Levels Sending Bearish Message."

Not much in the way of economic news; leading indicators may slip, and the Fed Minutes out tomorrow ought to work better than tryptophan if you can't sleep.

I am expecting to put up a couple of special chart updates for Peoplenomics subscribers this week:  One will be at the close of business on Wednesday so you can ponder the 'peak to crash' chart while snoozing off the turkey & dressing.  Then, on Friday, if the market gets really exciting, as I worry it may, I might put up an update of the 'peak to crash' chart  several readers have asked.

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Coping: More on Coops

From a reader:

"I would like to share with your readers a couple of suggestions for low cost food stores. First check within the Amish/Mennonite communities. They tend to specialize in bulk foods. Second, check with Country Life Natural Foods. Their link is:

http://www.clnf.org/products.html 

They deliver to you free of charge with a $400.00 minimum in most route areas and $500.00 in out lying areas. The nice thing is you can order once a year or every month. There is no required or mandatory monthly usage! Right now they deliver to the states of Michigan, Missouri, Wisconsin, Illinois, Indiana and Minnesota. Check with them directly to find out which route you would be on and if they make other stops. They are open on Sundays but not from late Friday afternoon through Saturday. They sell wholesome healthy foods in small to bulk quantities, most of which are organic. Hope this helps some of you in the Midwest obtain great quality low cost storables here in the Midwest.

Contributions to our "Coping" section are welcome  As we say in my family: "If you can't be generous and share when times are still good, when are you going to be able to?"

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Around The Ranch: Elaine and the Night Visitor

There I was, sawing the ZZZ's at 3:55 AM when Elaine woke me up to urgently report "George, I heard something on the back porch and there's a great big possum out there! The cats are out there! What should we do?"

"uh...turn the light on?"

"I did.  He's still there and he's huge."

Hmmm...wake up brain....  armory check:  Thinking, come on brain: Shotgun would make a mess on the back porch, buck shot buck shot down the stairs would leave a mess in the carport.  Out in the yard maybe? SKS? No, that'd bring coyotes. Night vision and Doubletap from a '9 away from the house maybe? No, any of these would scare the neighbor's rabbits to death and the personal threat level is zero  so scratch firearms... hmmm...what else?  Slingshot? Not awake enough.  Mongolian hunting bow?  Not strung.  Knife?  One throw....hmmm... got to be something....ah...here we go!   "Tell you what, let the cats in, and when the cat food is gone, the possum will leave."

Sure enough, within 5 minutes, the possum was gone, the cats safely alone, and a back to the ZZZ's after first making a note to pick up a cheap CD burner to strip the laser out (more powerful than the pointing devices you can buy at Office Box, and add another layer to the electronic defenses defenses around here.  Second note: don't leave the turkey on the back porch to defrost tomorrow. Bring ball bear supply over from shop.  Bring cat dishes in at night.  Is it time to get up already?