 | MONEY
| Confidence Shattered, Economy Limps Along |
| HOME | PRICE GUIDE | BUSINESS | SPORTS | OPINION | SPECIALS | STORE | ARCHIVES | CONTACT |
|
|
Confidence Shattered, Economy Limps Along - Money Matters for 9/27/05 Don Bravo | 9/27/05
Wall Street took on a somewhat somber sentiment today after a pair of reports showed that the economy might be headed for a recession.
Trading activity was more reminiscent of a dull summer day than a usually busy end-of-quarter session. Despite the discouraging news, the Dow actually finished with a marginal gain, while the broader indices fell by single digits.
The Consumer Confidence Index, compiled by the Conference Board, slid into a black hole in September, dipping to 86.6 from a revised reading of 105.5 last month. The 18.9 points was the largest one-month drop since October 1990, when the index fell 23 points.
Meanwhile, the Commerce Department reported that new home sales fell by 9.9 percent in August. It was another blow to an already shaky US economy even though new home sales account for only about 15% of all home sales in the US from month to month.
Both reports were released at 10:00 a. m. and cast a pallor over the entire day.
If these twin blockbusters weren't enough, the bond market continues to play patsy with an inverted yield curve. Yields on the 2 and 3-year treasuries closed to within 0.01 of each other, with the shorter maturity closing at 4.06, while the 3-year ended the day at 4.07. The curve remains nearly flat through the 10-year notes, which fell to 4.28. The thin spread of 22 basis points between the 2s and 10s is actually an improvement from last month when the spread was as low as 12 BPs.
That's still small comfort for bond sellers, who can't seem to catch a decent bid on the long end. With the Fed continually raising rates, all the while attempting to talk up inflation fears when the only inflation is coming from taxes, health care and energy - all items over which the Fed and consumers have little control.
With the housing market cooling, the Fed is actually working against itself. By raising rates for overnight loans (and consequently, small business, consumer loans and corporate debt), short term rates are almost certain to rise at a more pronounced clip than those on the long end.
Thankfully, the Fed won't take any action soon, unless it's an emergency move, since their next meeting isn't until November 1. After that, their December 13 meeting is the last of 2005. But if Chairman Greenspan and his pals think two more 1/4 point increases is right for this economy, then they will prove to be as detached from reality as many believe they are.
Inflation is a bogey man dreamt up by the Fed to allow for hiking rates, because the Fed had lowered them too dramatically in 2000-2001 (down to 1%, an emergency rate) and they need the "wiggle room" to lower them again if need be.
The Fed is well aware that this economy was never overheating and raising rates is only going to dampen any recovery that was occurring. If the Chairman is indeed concerned about his legacy, it's rather late in the game to address it, as he's already botched the economy into more malaise in the past seven years than he can ever hope to erase.
To him I say, "good riddance" and to his fellow governors, I wish them to take an early and extended Christmas vacation. The US economy will prosper quite well without any more meddling from this particular bunch of numbskulls.
BY THE NUMBERS:
Dow Jones: +12.58; 10,456.21 close
NYSE Advancers: 1393
Nasdaq Advancers: 1353
NYSE New Highs: 91
Nasdaq New Highs: 89
Gold: -3.30; 466.20 close
|