A Melman Minute — August 26, 2011
| By | Leonard Melman |
|---|---|
| Date | August 26, 2011 |
Well, the world had been holding its breath waiting for word from Fed Chair Ben Bernanke, wondering what majestic programs the Fed Chairman might tell us about in his long-awaited address from the monetary leaders’ gathering at Jackson Hole, WY. Well, he spoke out this morning and told us – virtually nothing! The only statement of substance was that the Fed would discuss exactly which tools it could use to stimulate the economy at its next scheduled meeting on September 20 which they have extended to include two days.
All the rest of his talk was generalized statements about how the Fed still had tools available, how they would have a full discussion of the situation, how the fundamentals of the American economy have not been altered severely and how it might take more time than previously expected, but the economy would surely return to regular growth.
Apparently, the markets were much more afraid of what the Fed Chairman might actually do than they are afraid that he might do nothing at all, because the markets have been roaring ahead since his non-specific, generalized address. As can be seen on the following short-term Dow Industrials chart, after a quick decline when he started speaking, the Dow rallied by well over 300 points – from a low of about 10,930 to 11,300 – about 370 points, in just TWO HOURS! One can only wonder what the rest of the day will bring.
However, despite the Fed Chair’s assurances, the rest of the world seems somewhat unconvinced. The final August 2011 Consumer Sentiment readings issued by the University of Michigan came in at 55.7, down from 63.7 the month previous. Quite amazingly, that monthly number has been lower on only three previous occasions; April and May 1980 and November 2008 and each of those readings took place just prior to severe recessions!
It is also worth noting that the U of M’s survey of consumers’ future expectations – and it is their outlook for the future that motivates many long-term consumer purchases - came it at an even lower figure, 47.4.
These figures are hardly the only bits of negative data floating around in our economic universe. Among the other ‘tidbits’, we cannot help but note:
Greece remains mired in serious troubles. As their fundamental economic situation has deteriorated, depositors have been withdrawing their funds from Greek banks and moving them out of the country. As a result, financial writer Philip Pangalos, authoring a study datelined from Athens cited Yiannis Stournaras, director general of the Foundation for Economic and Industrial Research declaring that “...The flight of funds abroad reflects fears of a Greek banking collapse.” (Our emphasis)
Greece recently lowered their annual GDP “growth” forecast, or, more accurately, increased their contraction forecast to -5.0%, raising the question of how Greece is supposed to honour its new obligations when their economic structure appears to be collapsing.
Spain appears to be headed toward renewed recession, just at a time when youth unemployment is already in excess of a staggering forty percent! |Growth forecasts have already been scaled back to +0.2%, and it looks as if any further negative data could send that nation into renewed recession as well. Given Spain’s enormous level of debt, which it is already having difficulty servicing, that situation could be ominously threatening as well.
The US Commerce Department just announced that growth in the USA slowed to an annual rate of just 0.7% for the first six months of 2011, a rate of expansion insufficient to even keep pace with population gains. A serious implication of this figure is that most of the rosy projections issued by the Congressional Budget Office (CBO) and repeated frequently by the Obama Administration have been based on a much higher growth rate. Unless growth suddenly accelerates to a higher and sustainable figure, improvement in future deficit numbers is not likely to take place.
Unfortunately, we must cut these musings short as publishing deadlines are once again staring us in the face.
As of 10:00 AM PDT, financial markets are holding on to much of their post-Bernanke address gains with the Dow ahead by about 130 points and Canada’s TSX Index now in positive ground after recording deep earlier losses. Gold is trading through a wide price range, having reached to almost $1,800 per ounce before falling back to near $1,785 while silver is down slightly to about $40.60. Base metals prices have advanced this morning and mining share indexes are close to unchanged on balance.
In other markets, the US Dollar Index has slipped once again to under 84; crude oil is trading quietly near $85 per barrel and long term interest rates are trending lower.