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Fun With Numbers - Money Matters for 11/30/05
Today's column is going to be a little different (with apologies for yesterday's missing column's technical difficulties). It's going to be a little like a quiz, but without too many questions and you can answer any way you like. There are no right or wrong answers, only hypothetical ones, such is the nature of economics in the 21st century.
First, let's look at some numbers released over the past two days:
GDP for the third quarter of 2005 was revised upward to show growth at a 4.3% annual rate, from the earlier estimate of 3.8% (That's a pretty good jump and testimony to the fallacy of government "estimates".)
Yesterday, the Commerce Department reported that durable goods orders were up a whopping 3.4% in October after a drop of 2% in September.
Consumer confidence, after hitting the skids in October with a reading of 85.2, all of a sudden leaps up to the feverish level of 98.9 in November. Maybe people just feel better with the holidays coming.
New home sales for October came in at 1,424,000, when the experts expected only 1,220,000 after September's 1,260,000. So much for the end of the housing boom.
Now, those are some pretty positive numbers and one would expect the stock market indices to be soaring to the high heavens. But, today, the Dow and NYSE took sizable hits, while the Nasdaq gained less than a point.
Meanwhile, over in the bond pits, there is much head-scratching and hand-wringing as short term rates are beginning to invert. On Monday, the 2-year and 3-year inverted for a time, and did so again today. At the close, the spread between the 2 and 5-year is a mere 2 basis points, and the spread on the 2s and 10s is just 9.
If the bond markets are going to invert, they will do so on or around December 13, the date set for the next Fed meeting, an unlucky number, and if the Fed decides to raise rates, it will be the 13th consecutive meeting at which they've raised rates. Not that anybody who invests is superstitious... no, siree!
With the economy supposedly ripping along at a fairly good clip, the chances that the Fed will raise rates again, this time to 4.25%, are very good, probably better than 50-50. I wouldn't bet against them raising them because they still need that wiggle room to lower rates should recession come, or, even more likely, should they actually cause the recession by tightening rates a bit too much. Gotta have wiggle room, remember.
The Fed is going to push rates to the edge or beyond, as they always do. Count on it. They've probably already pushed them higher than they should be, after lowering them lower than they should have been.
Let's add some more numbers to the mix. Crude oil is holding fairly steady at around $57 per barrel. But, at the same time, gold has shot over $500 briefly, and silver, which was pounded down to just over $6.50/oz. less than a month ago, is now over $8.00, closing today at $8.39.
So what do all these numbers mean?
Here are some answers and reasons why they might be right or wrong in parentheses:
1. The economy is growing at a good clip, but inflation is raging, so the Fed has to cut rates and gold and silver are going to go up. (Maybe. Except that the economy is not really in great shape and inflation is only in energy, though that fuels more inflation across the board.)
2. If the economy is growing the bond players have it all wrong with the inverted yield curve and it's 100% correlation to recession. We can't be growing and moving into a recession at the same time. (This works only if you believe in government statistics.)
3. The bond guys are right, the rest of the government-sponsored figures are pure propaganda designed to prop up the flagging poll numbers of the president. (The government lying to us? Never happens!)
Yes, numbers can be fun, especially when you know what they mean. (I'll take door #3, Monty.)
Dow Jones: -82.29; 10,805.87 close
NYSE Advancers: 1630
Nasdaq Advancers: 1770
NYSE New Highs: 104
Nasdaq New Highs: 125
Gold: -4.80; 498.70 close
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