drbrightside

Shock and Awe From Larry Kudlow

2007-12-03T19:23:00.000-08:00

After a small hiatus of worrying about lagging inflation indicators, my favorite business talk show host has come back around on the need for further and more dramatic rate cuts. He makes some poignant arguments noting credit risk spreads increasing to August crisis levels recently. What took you so long Larry? Excerpts from his blog below..............................

Kudlow 101: More Shock and Awe

I have changed my mind.Until recently, I thought the Fed could stand pat at their December 11th meeting. However, I have completely changed my mind in light of the continuing credit market turbulence.Take a look at the commercial paper market (90-day asset-backed CP minus 90-day T-bill). Think mortgages, credit cards, auto loans, etc:

We’re back to almost 250 basis points. The spreads have widened so much that they’re close to where we were last August. The key here is that short-term money markets are not funding properly. This deterioration is what Mr. Bernanke and Mr. Kohn are looking at. It is of grave concern. It means businesses cannot function properly. And that could mean job losses.

Rest of Blog Post Here

Fed Backtracks on Hawkish Stance

2007-11-28T12:43:00.000-08:00

Previously I posted how absurd the Fed's statements were weeks ago that growth and inflation risks were relatively equal. Now Donald Kohn is helping the Fed to backtrack and setting the stage for a much needed rate cut in December.........

Rate-Cut Hopes Lift Stocks

Stocks took a bull run on Wednesday, spurred by non-stop good news, including rising hopes for a Fed rate cut, signs of recovery in the battered financial sector and a stabilizing dollar.....

.......There was at least one spark for the day's gains, however: rekindled hopes for a further rate cut by the Federal Reserve. Fed Vice Chairman Donald Kohn said credit conditions had deteriorated again in previous weeks, and suggested the Fed could step in to bolster the economy. The remarks seemed less hawkish than those of other Fed speakers recently, implying the Fed might be more inclined to cut rates at its next policy meeting on Dec. 11.

"The Fed is giving the market hope for rate cuts…while financials are going through some self-help," said Alan Gayle, senior investment strategist.......

By CAROLYN CUI - WSJ

WSJ link here

Inflation? Bond Market Doesn't Think So

2007-11-26T19:19:00.000-08:00

10-Year Treasury Yield at 2 1/2 Year Low

Treasurys Rally on Credit Market Fears; 10-Year Yield Drops to Lowest Point Since June 2005

NEW YORK (AP) -- Treasury prices rallied dramatically Monday on more credit concerns, pushing the benchmark 10-year note's yield down to its lowest level in two and a half years.

Trading was dominated by a fresh set of worries about the impact of deteriorating below prime home loans on the credit and housing sectors; those concerns led investors away from risk and to again seek the safety of government bonds.....

........The benchmark 10-year Treasury note rose 1 17/32 to 103 20/32 with a yield of 3.85 percent, down from 4.00 percent late Friday. The 10-year yield has not been this low since June 2005.

The 30-year long bond advanced 2 27/32 to 112 1/32 with a yield of 4.25 percent, down from 4.43 percent late Friday. ..........

Full Story Link Here

Growth and Inflation Equal Risk? I Don't Think So

2007-11-20T19:23:00.001-08:00

I apologize for the infrequent post as of late, hasn't been too much that has riled me up lately, until now. With the Fed releasing it's short and long term forecast and minutes from it's last meeting, obviously they are posturing big time on the threat of inflation. Let me say this for the umpteenth time, inflation is not our problem. Inflation is 2-3 year lagging indicator that has been contained. The Fed needs to be concerned with growth which apparently they are internally by their minutes and externally by their somber forecast. I think they need to continue to cut 25 basis points or more at each of the next 4 meetings and see what happens..............

Squaring the circle over Fed's stance on cuts

Information in the minutes of the last Federal Reserve meeting and the new economic projections by the US central bank provide ammunition for both sides in the rate-cut debate.

On the one hand the minutes devoted greater attention to the risks to growth than the risks to inflation - unlike the statement issued after the meeting, which declared that the risks were "roughly balanced" following the rate cut.

On the other, the economic projections revealed that the Fed has a low assessment of the potential growth rate of the US economy - a view that would make it less inclined to cut interest rates when growth is sluggish for fear of igniting inflation.

The discussion in the minutes is hard to square with the notion that the central bank sees the growth and inflation risks as completely balanced.

"It was a little bit of a stretch for them to get to neutral, given the preponderance of downside risks in the minutes," says Peter Hooper, chief economist at Deutsche Bank Securities..............

Excerpts From Financial Times

For rest of story click here

A Shot in the Arm for Jumbo Mortgages

2007-11-11T07:27:00.000-08:00

Bernanke sets out jumbo mortgage plan

Ben Bernanke, Federal Reserve chairman, on Thursday put forward a plan to help revive the secondary market for jumbo (large denomination) mortgages that would involve Fannie Mae and Freddie Mac, as well as credit guarantees from the federal government.

Mr Bernanke told Congress he would support raising the limit on the size of the individual loans eligible for securitisation by the government-sponsored mortgage finance entities from $417,000 to $1m (€680,000, £475,000) on a temporary basis.

He suggested that Fannie and Freddie could pay insurance premiums on these loans to the federal government, which would "act as guarantor" by taking on some of the credit risk.

Charles Schumer, the Democratic chairman of the Joint Economic Committee, enthusiastically welcomed the idea and said he would try to insert it into legislation already before Congress.

The unusually specific proposal by Mr Bernanke reflects his disappointment at the continued problems in the jumbo market, and concern that this will aggravate the US housing downturn.

By Krishna Guha - Financial Times

Full Story Link Here

Silicon Valley Q3 Venture Capital Still Rolling

2007-11-11T07:12:00.000-08:00

Start-ups fatten up: Venture capital spigot flows freely in Q3

MERCURY NEWS SPECIAL REPORT: VENTURE CAPITAL

With investments in the emerging "clean tech" industry continuing to soar, Silicon Valley companies received more than $2.48 billion in venture capital in the third quarter of 2007 - a sign that the valley's entrepreneurial culture is thriving despite broader economic worries.

The quarterly MoneyTree Report found that the valley's total venture investments, while dipping slightly from the previous quarter, represented robust 9 percent year-over-year growth. As usual, Silicon Valley and the broader Bay Area outpaced other tech hubs by a wide margin, reaping 35 percent of the $7.1 billion in venture investments in the United States........

For the venture capital industry, the upbeat quarter came at a time the U.S. economy quivered from the rippling effects of the subprime mortgage meltdown. The ensuing credit crunch as well as rising fuel prices have economists warning of a marked slowdown and a potential recession.

But the valley's tech-driven economy seems cushioned from the domestic worries as it relies increasingly on expanding global markets. VCs, in particular, exhibit a buoyant mood, according to a quarterly survey by University of San Francisco Professor Mark Cannice that is compiled in the university's Silicon Valley VC Confidence Index........

By Scott Duke HarrisMercury News

For Full Story Click Here

With Productivity Up Sharply Fed Can Cut More

2007-11-07T06:11:00.000-08:00

Productivity Rises, Easing Inflation Fears

WASHINGTON -- U.S. productivity jumped last quarter at its fastest pace in four years while labor costs fell, a welcome relief for Federal Reserve officials worried about the inflationary effect of rising energy and commodity prices.

Still, the productivity rebound may prove temporary if the economy slows as expected in the fourth quarter and in early 2008.

Nonfarm business productivity swelled at a 4.9% annualized rate between July and September, the Labor Department said Tuesday. That is more than double the 2.2% rate in the second quarter, which was revised down from a previous estimate of 2.6%. Productivity is defined as output per unit of labor.

The third quarter productivity gain was well above Wall Street expectations of a 3.4% rise. The increase reflects the recent mix of strong economic growth data with slower gains in payrolls.

Unit labor costs -- a key gauge of inflationary pressures -- fell 0.2% last quarter, the biggest drop since the second quarter of 2006. Economists had expected a 0.8% rise. Still, labor costs were up 4.3% from a year ago, suggesting some pressures linger.......

By BRIAN BLACKSTONE - WSJ

For WSJ Article Click Here

Keep Cutting

2007-11-05T19:37:00.000-08:00

Excerpts from James C. Cooper - Businessweek - Business Outlook

On Guard Against Recession
All signs suggest meager growth—if that—in the fourth quarter, with little improvement in early 2008. So the Fed is taking preemptive action

The goods news: The government says the economy grew 3.9% in the third quarter. The bad news: That's the last of the good news on growth. In the fourth quarter, look for the full brunt of the credit crunch, the latest downturn in the housing slump, $90-a-barrel oil, and growing caution by consumers and businesses to take their tolls. Most economists expect growth of only 1% to 2% this quarter, with little improvement in early 2008, and many of those folks have their fingers crossed. The risks to that somber forecast are almost all to the downside.

It is the unknowns that prompted the Federal Reserve to take out some more recession insurance on Oct. 31 by lopping a quarter-point off its target interest rate, bringing it to 4.5%. Whether the economy will be derailed by the tighter financial conditions caused by the mortgage-related turmoil in the credit markets remains the biggest unknown. Federal Reserve Chairman Ben S. Bernanke and other influential policymakers have noted recently that in times of high uncertainty, strong, preemptive action may be the right policy to prevent broad damage to the economy.......

........The problem is that the third quarter started strong but finished much weaker, with manufacturing, hiring, and confidence on the wane. The Conference Board's October index of consumer confidence dropped for the third month in a row, to a two-year low, partly reflecting job worries.....

......Business confidence is also slipping, which puts capital spending and payroll gains at risk. Companies are hesitant to commit money to new projects. Orders for capital goods other than aircraft have stagnated since April, and production of business equipment has made no progress since July. A credit squeeze could be one reason. Yield spreads between investment-grade corporate bonds and riskless Treasury notes, a gauge of investors' risk aversion, remain wide, even for AAA-rated companies.........

Full Story Link Here

Housing Bottom?

2007-11-01T18:01:00.000-07:00

Is the Bottom Near for Housing?

.......There's a lot of money to be made in picking the tops and bottoms of cycles. But it's an extremely difficult exercise, and even a minor error in timing can lead to severe losses.

With that said, I'd like to examine some possible events that could signal that the bottom of the housing and credit cycle is near.

Off with their heads!During a crisis, the public needs someone to blame. Ivan Boesky, Ken Lay, and Bernie Ebbers are some of the toppled titans who have been the focus of public ire. It's part of the cathartic experience to dispatch those deemed responsible and to start fresh with a new era.

At many major banks, we can see that the catharsis has begun. The CEOs of Citigroup, Bear Stearns, and Merrill Lynch have fired underlings they deemed accountable for the crises. And in the case of Merrill Lynch, CEO Stan O'Neal politely retired today, leaving a big void.

However, analysts, shareholders, and the general public don't seem satisfied. They seem to want to fry bigger fish in an attempt to close the books on the current era of the housing bubble.

Berkshire Hathaway enters the frayIn an interview with Fox Business News, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) Chairman Warren Buffett said he hasn't bought any homebuilder shares yet because he doesn't think they're underpriced. No doubt Buffett is paying very close attention to the industry and may be simply waiting for his price.

In fact, the four largest homebuilders -- D.R. Horton (NYSE: DHI), Pulte (NYSE: PHM), Centex (NYSE: CTX), and Lennar (NYSE: LEN) -- sport a combined $15 billion market cap. If you assume the shares of those homebuilders will slide another 20%, then the price tag would fall to $12 billion, plus a takeout premium. That's very doable for Berkshire and its $40 billion cash hoard.

In addition, if Berkshire were to buy several major homebuilders, it could be taken as a self-fulfilling prophecy that the end of the housing slump is near. Although the top 10 homebuilders have only a combined 23% market share, according to an article by the Dallas Morning News, markets are extremely local.......

By Emil Lee - Motley Fool

Could This Be The Bottom?

2007-10-25T07:30:00.000-07:00

Despite getting caught in the cross hairs of the mortgage and credit debacle of September new homes sales were up month over month. Sales in the west were up a remarkable 38% in September. Since the west led this housing recesssion, possibly it will soon lead the U.S. out...............

excerpts from WSJ

New-Home Sales Rose Last Month,But August Drop Revised Lower

........Overall, the median price of a new home increased by 5.0% to $238,000 in September, compared with September 2006. But the average price declined by 2.8% to $288,000 from a year earlier.

The ratio of new houses for sale to houses sold, an indicator of supply, fell during September, going to 8.3 from 9.0 in August. There were an estimated 523,000 homes for sale at the end of September, down from August's 531,000.

Regionally last month, new-home sales increased 37.7% in the West and 0.5% in the South. Sales decreased 6.6% in the Northeast and 19.5% in the Midwest.

By ELIZABETH PRICE - WSJ

Venture Capital Best since 2001

2007-10-21T17:00:00.000-07:00

Venture Capital is the main leading indicator of job growth and strengh in the bay area economy. Also note that 2.52 billion dollars flowed into bay area companies last quarter which represents over 31% of all venture capital in the united states. California accounted for 44% of U.S. venture capital..........

U.S. Venture Capital Investment Reaches Highest Level Since Q1 2001, Rises 8% to $8.07 Billion in Third Quarter of 2007

Venture capitalists continued to put more money to work with entrepreneurial companies, as overall U.S. venture capital investment climbed 8% in the third quarter of 2007 compared to the same period last year to reach $8.07 billion, according to the Quarterly Venture Capital Report released today by Dow Jones VentureOne and Ernst & Young LLP. This marked the ninth consecutive quarter of gradual year- over-year growth in dollars invested and is the highest quarterly investment total since the first quarter of 2001.......

.......Two-thirds of all capital invested in the third quarter -- some $3.81 billion -- was put to work in 224 later rounds, the most invested in late- stage companies since 2001, while combined seed and first round investment remained steady year-on-year at $1.74 billion. These sizable later rounds helped to push the overall median for a venture capital deal in the third quarter to $7.92 million, a new record.

......California dominated the venture capital activity in the third quarter, representing 44% of both the nation's deal flow and its capital invested. ...........................

-AP Newswire

Full Story Link Here

More Jobs for Bay Area

2007-10-19T16:11:00.000-07:00

Bay area is definitely on a roll with new job announcements....

One of the world's largest manufacturers of solar power systems has chosen San Francisco for its North American headquarters, a move that could bring hundreds of jobs and solidify the city's place at the forefront of clean energy.

Suntech Power Holdings Co. has subleased half of the eighth floor at 188 Embarcadero, said Roger Efird, president of Suntech America, its U.S. subsidiary. Up to 15 senior employees are expected to be working there within 30 days and more than 50 by the end of 2008. The company is "in merger and acquisition mode," Efird said, and depending on its success with that in the months to come, could easily employ "four, five, six times that many."

Based in Wuxi, China, Suntech rocketed to the top of the solar industry in a short time. Founded in 2001 by Zhengrong Shi, it employs 4,000 worldwide and maintains four factories in China. It listed on the New York Stock Exchange in 2005 and now has a market cap of $6.45 billion. Shi, Suntech's 44-year-old CEO and chairman, made Forbes' list of the world's billionaires this year with an estimated net worth of $2.2 billion.

Suntech America has been operating out of Olney, Md., and was heavily recruited by cities and states around the country, including Oakland. An announcement of its move to San Francisco is expected within days.......

-Excerpt from San Francisco Business Times - by Elizabeth Browne

MySpace Adding Jobs in Bay Area

2007-10-16T06:38:00.000-07:00

Story from San Francisco Chronicle........

MySpace, the popular social-networking destination, is opening an office this week in San Francisco and plans to hire as many as 200 employees as it moves to redesign its site, introduce features and fend off rivals such as Facebook.

The San Francisco office, in the SoMa neighborhood near AT&T Park, will focus on enhancing MySpace's infrastructure, creating products and forging strategic partnerships - some of which are expected to be announced this week.

The move is the latest sign of growth for the Los Angeles company, which was acquired two years ago by Rupert Murdoch's News Corp.

Most of the new hires will be engineers.

"We literally planned out all the products we're going to build in the next year or two. We don't have enough engineers to do what we want to do," MySpace Chief Executive Officer Chris DeWolfe said. "Clearly, San Francisco and Silicon Valley attract the top engineering talent in the world. ... It's going to allow us to develop incredibly rapidly."

By Ellen Lee, San Francisco Chronicle

For Full Story Link Here

Bright Spots in Real Estate

2007-10-14T19:46:00.000-07:00

It's not all bad out there in the residential real estate world. Areas with less for sale inventory and lower supplies of land have faired quite well this last year despite national woes. Areas such as Portland, Seattle, and some trophy areas of California. I was especially intrigued by this relatively recent article in Wall Street Journal regarding America's Riviera, Santa Barbara, and the strength of its housing market..............

The New Gold Coast
One Stretch of California Defies Housing Slump;
Median Sale, $1 Million

CARPINTERIA, Calif. -- Other than an 18-foot-tall rooftop Santa Claus visible from the highway, this middle-class beach town used to be but a blur for wealthy vacationers speeding toward tony Montecito and Santa Barbara, about 10 miles up the road. Today, the statue is gone, and a clutch of the megarich have made Carpinteria an unlikely stop for buyers who can afford any ocean view in the world.

Public records show that New York billionaire hedge-fund manager Bruce Kovner spent $83.3 million this year to amass 15 bluff-top acres, including a luxury villa, near the end of a highway exit ramp. He also has agreed to buy part of Kevin Costner's field of dreams next door: Last year, the actor acquired 17 grassy acres dominated by a polo field for $28.5 million. Just down the road, a beachfront house on a mere quarter-acre is listed for sale at $24 million.

Carpinteria's arrival on the luxury-estate scene illustrates how California's gold coast is defying the downdraft in the national housing market. Eye-popping sales are spreading along a 40-mile stretch of southern Santa Barbara County, through sprawling ranch lands and past hillside homes, to the enclave of Carpinteria. In July, when existing-home sales slumped by 9.3% nationally and plummeted 23% in California compared with a year ago, sales along the county's southern coast soared nearly 28%, according to the California Association of Realtors. It also was the only region of California where the median sales price surpassed $1 million.

Estates in the exclusive Hope Ranch and Montecito communities set the standard in an area long prized by tycoons and Hollywood players for its mild climate, natural beauty and low-key sophistication. Indeed, at Oprah Winfrey's Montecito fund-raiser tomorrow for Democratic presidential candidate Sen. Barack Obama, more than her political firepower will be on display. Ms. Winfrey's 40-acre hillside estate, bought six years ago for around $50 million, has swelled in value to $84.7 million, according to public county-assessor records.

Santa Barbara's high-end housing market is set for its best year ever, according to Wendy Gragg, chief executive of the Distinctive Real Estate agency. Just counting properties with a value of at least $10 million, the area notched more than $195 million in sales so far this year, putting it on track to beat last year's local record of $219 million............

By JONATHAN KARP - WSJ

For rest of article click here

Keep Cutting

2007-10-01T12:30:00.000-07:00

Below are some excerpts from and excellent article by James C. Coooper from the October 1 issue of Businessweek. He makes a strong case (and I concur) that the Fed definitely has further to go on rate cuts......

Rate Cuts: The Fed May Just Be Warming Up
The half-point reduction isn't enough to erase the risk of recession Score one for the Fed.

Facing both deteriorating financial conditions and new risks to economic growth, the Federal Reserve stepped up to the plate on Sept. 18 and hit more than just a solid single. This one went for extra bases. The Fed's half-point cut in its target interest rate, to 4.75%, was well beyond the quarter-point reduction most Wall Streeters were expecting. And the policymakers left the door cracked for further trimming "as needed." The question now: Will more be necessary?

Probably. The big cut lessens, but does not eliminate, the chance the Fed will cut again at its Oct. 30-31 meeting. The Fed sounded as uncertain about how the recent credit turmoil will play out as anyone, so much so that it avoided offering its usual assessment of whether economic growth or inflation was its primary concern.Nevertheless, as long as uncertainty and fear continue to prevent the proper functioning of the credit markets, economies in the U.S. and abroad will be at risk. The Fed's action will go a long way toward restoring confidence in businesses' access to the funding they need to operate, but even a half-point decrease won't quickly thaw out frozen markets or reverse the downdraft already hitting economic activity........

Full Story Article Link Here

Green is Good: In Silicon Valley

2007-09-25T20:24:00.000-07:00

Silicon Valley companies going green in a big way

Silicon Valley companies are focusing more than ever on climate change, energy and the environment, turning the area into a hub for "clean tech" research.

That's the conclusion of a report released today by the Silicon Valley Leadership Group, a public policy organization whose members include many of the region's biggest companies.

More than 100 Bay Area companies now concentrate on solar power research, development or installation, according to the report. Venture capitalists are pouring money into clean technology companies, with most of that money - about $1.13 billion in 2005 - going to California companies.......

David R. Baker, Chronicle Staff Writer
Monday, September 24, 2007

For rest of story go to Link Here

Finally!

2007-09-18T18:24:00.000-07:00

Well the Fed finally seems to be listening. The market, myself, anyone who lives in the real world have begged for this cut for many months. The Fed acted boldly after playing it close to the vest, waiting it out, then cutting 50 basis points from the Funds rate today to the cheers of many. I'm terribly relieved that they acted, and I hope they continue to move in the neighborhood of 50-100 more by the end of the year. There is no inflation threat right now, only deflation of many American assets as the demand for money increased and liquidity stalled out. I think Larry Kudlow did an excellent job of calling for the cut, some excerpts from his latest blog postbelow describe the immediate market affects:

Bernanke Gets It Right

Once in a while you get it right. One time in a row.

I talked about this in my last column,

Goldilocks 2.0.

The Bernanke Fed made a good strong move this afternoon. The stock market applauded loudly with a 250-point rise in the Dow. Essentially, the Fed followed Treasury market rates lower. The 4 percent Treasury bill rate had been urging the Fed to make this move.

By itself, this action will not heal the credit markets overnight. But it will help. Lowering the cost of money will -- over time -- raise asset values across-the-board. New cash injections at the new target rate of 4.75 percent will raise the low 2 percent growth of the monetary base in order to accommodate the banking system’s unusually high cash demands.

Adjustable rate mortgage holders will get almost immediate relief.

This is a confidence-inspiring move by the Fed. Lenders will be more apt to lend and investors will be more apt to take risks..........

Link to rest of story at Kudlow's Money Politics Blog

Roll the dice: 25 or 50?

2007-09-15T11:17:00.000-07:00

As the Fed prepares to make one if it's most important policy decisions under Bernanke, I'm elated that we are at least seemingly locked into a rate cut which I have been clamoring for months. Unfortuantely, I don't think the Fed will take out the insurance policy necessary by cutting 50 basis points this week. They will again, continue to fall behind the curve of the economic slowdown and most likely take it 25 basis points at a time. This will be a defacto rate increase as the effective Fed Funds rate has been hovering below 5.00% and the market and the economy will be disappointed. We can only hope for more cuts sooner rather than later.......

Economists predict/debate on WSJ economics blog.........

Economists Debate: A Quarter Point or a Half?

This Tuesday, the Fed is expected to lower the target for the federal-funds rate — therate at which banks lend to each other — for the first time in over four years. The key question is how much will the Fed cut? Economists preview the rate decision, and what they expect the Fed statement to say, below.

We look for a 25-basis-point rate cut from the FOMC this Tuesday …, although we believe a larger 50-basis-point cut still carries significant probability. We expect further cuts in the discount rate [currently at 5.75%], possibly of greater magnitude than the drop in the funds rate [currently at 5.25%]. We expect the FOMC statement to emphasize that the downside risks to the growth outlook are the predominant policy concern. – Credit Suisse

While we certainly would not be surprised if the FOMC cut the fed-funds target rate by 50 basis points [by 1/2 percentage point, to 4.75%] next Tuesday, in our view, a 25 basis point cut by a slim margin seems the more likely outcome. Even though the FOMC appears to be trying to move toward greater transparency, we think that this Tuesday’s FOMC statement may be a situation in which the less said, the better. …. The outlook for the economy, the credit markets, and the financial markets is highly uncertain right now. In times of great uncertainty, we think the FOMC generally favors an incremental approach to policy changes. – Friedman, Billings, Ramsey Economic Research

For blog link and further debate click link here

Productivity Strong and Inflation Low

2007-09-06T19:23:00.000-07:00

Simply stated - more head room for the Fed to do what it needs to do - cut the Fed Funds Rate................

Productivity Grows at Faster Pace
US Worker Productivity Rebounds Strongly, Wage Pressures Ease Sharply in the Spring

WASHINGTON (AP) -- Worker productivity rebounded, growing at the fastest pace in nearly two years, while wage pressures eased sharply in the spring -- developments that should reduce inflation worries.

The Labor Department reported Thursday that productivity, the amount of output per hour of work, jumped to an annual growth rate of 2.6 percent in the April-June quarter, even better than the 1.8 percent increase that was originally reported.

Wage pressures, as measured by unit labor costs, slowed to an annual growth rate of 1.4 percent, slower than the initial estimate that labor costs were rising at a 2.1 percent rate..................

................The increase in productivity and the reduction in labor costs were better than had been expected, raising hopes that the Federal Reserve will have the leeway to cut interest rates at its next meeting on Sept. 18...........

-By Martin Crutsinger, AP Economics Writer

For rest of story link here

Rate Cuts = Stronger Dollar

2007-08-27T20:58:00.000-07:00

Fed Ease Means Dollar StrengthRate
Increases have rarely constituted “tightening” when it comes to restoring the greenback’s value.
By John Tamny & Paul Hoffmeister

The Federal Reserve’s change in bias last week toward cutting the federal funds rate, along with its half-point cut in the discount rate, offers an opportunity to test the widely held belief that rate cuts weaken the dollar while exacerbating existing inflationary pressures. In truth, the opposite is typically the case, since dollar-demand shifts when the Fed acts.

Last week, the market response to the Fed’s new course was profound: Gold began a new short-term downtrend. The dollar adjusted for gold started a short-term uptrend compared with the euro adjusted for gold. The 30-year Treasury yield began a short-term downtrend. And the Russell 2000 Index — comprising small-cap companies and arguably the most sensitive equity index to monetary policy error — ended its recent short-term downtrend.

Overall, lower gold prices, a stronger dollar against the euro, lower long-term bond yields, and rising equity valuations are indisputable hallmarks of a disinflationary environment — not a resurgence of inflation........

Full Story Link Here

Fed Needs to Finish the Job - Part 2

2007-08-22T13:45:00.000-07:00

Joseph Mason, an economist at Drexel Univerisity, discussed today why the Fed's Discount Rate cut is only a short term bandaid at best...............

Mr. Mason’s comments:

Let’s be direct. While markets may have been temporarily assuaged by Friday’s Discount Rate cut, the problem at the heart of current credit difficulties is over-leverage. Structured finance conduits (like subprime) are failing because they sold too much high-rated credit and not enough risky credit. That is, they over-leveraged. CDOs bought those over-leveraged structures and then leveraged the structures some more. Hedge funds bought the CDOs and then borrowed to buy more, leveraging themselves 10 or more times over in the process. Over-leverage is a condition of over-borrowing. While discount window lending to insolvent institutions as a broad based bailout policy was attempted in the Thrift Crisis and the Great Depression in the US, and many times elsewhere, it has never once meaningfully addressed industry-wide problems of over-leverage or help restore banks to solvency.

The point is, over-borrowing has not once been reconciled through more borrowing, whether through the discount window or elsewhere. Here are two relevant articles. One is the Federal Reserve Bank of St. Louis’ Homer Jones Memorial Lecture given by Anna Schwartz (Milton Friedman’s co-author on the Monetary History of the United States) in 1992, and one is authored by myself, published in 2001. Both show the frivolity of discount window lending in cases of industry-wide difficulties. Discount window policy will help the industry weather a few weeks of transitory market difficulties, but discount window policy is unlikely to help in the long term. Given the magnitude of interest rate resets increasing well into 2008, more meaningful policy geared toward providing transparency toward RMBS, CDO, Hedge Fund, and Mutual Fund holdings needs to be developed in the few weeks we have bought with the discount window policy. Financial panics tend to happen in the fall, and that time is soon upon us.

- From WSJ Real Time Economics Blog

Blog Link Here

CNBC says Silicon Valley Housing Sizzling

2007-08-21T07:16:00.000-07:00

I've been posting about the strong bay area and silicon valley economy since Q3 last year, and it's continuing to show up in the housing market...........

Here is a very pertinent special report in video form from CNBC:

Link Here

Fed Needs to Finish the Job

2007-08-20T18:36:00.000-07:00

Cutting the discount rate was a nice gesture, but the market needs a a dramatic Fed Funds rate cut immediately. To wait is only to deepen the chance of a recession and create more uncertainty in the market. As I mentioned Friday, I can only attribute this lack of action on the Funds rate as to stubbornly protect a flawed Fed forecast just weeks ago forcing them to admit they have been out of touch with the real world.

Fed may have to cut federal funds rate
Most economists believe Fed will cut at or before its Sept. 18 meeting

WASHINGTON (MarketWatch) -- U.S. credit markets remained extremely fragile Monday, and observers said the Federal Reserve may have to lower its federal funds target rate to inject permanent liquidity into the market and provide investors with more assurances that the central bank will act to keep the economy growing.

Yields on short-term Treasurys plunged on Monday, evidence that fund mangers were parking their cash in the safest and most liquid assets rather than risk them in any asset backed by mortgages or even in the normally sedate commercial paper market.

The yield on the three-month Treasury fell more than a full percentage point at one point, finishing at 3.09%, down 66 basis points on the day and down about 150 basis points in a week. It was the largest decline since the day the market crashed in 1987.

By Rex Nutting, MarketWatch
Last Update: 6:03 PM ET Aug 20, 2007

Full Story Link Here

It's a start..............

2007-08-17T06:57:00.000-07:00

This is a start, but I don't understand the stubbornness of not lowering the fed funds rate.........

Fed OKs Reducing Discount Rate on Loans

Friday August 17, 9:52 am ET

Federal Reserve Approves Half-Percentage Point Cut in Discount Rate on Loans to Banks
WASHINGTON (AP) -- The Federal Reserve approved a half-percentage point cut in its discount rate on loans to banks Friday, a dramatic move designed to stabilize financial markets roiled by a widening credit crisis.

The action had an immediate positive impact, sending stocks soaring on Friday right at the opening bell. The Dow Jones industrial average surged by more 300 points at the start of trading.

The decision means that the discount rate, the interest rate that the Fed charges to make direct loans to banks, will be lowered to 5.75 percent, down from 6.25 percent.

The Fed did not change its target for the more important federal funds rate, which has remained at 5.25 percent for more than a year. Friday's move was not expected to have an immediate impact on consumer borrowing...............

Friday August 17, 9:52 am ET
By Martin Crutsinger, AP Economics Writer

For rest of article click here

C'mon Ben....This is getting ridiculous

2007-08-15T15:35:00.000-07:00

Ok, Ben Bernanke is going to transform me from Dr Brightside to Dr Evil. I'm just going to chalk it up to stubbornness and rhetoric, I suppose. I heard Steve Liesman of CNBC make a great point this morning about Big Ben; he descends from academia so until he can touch and feel the data he's going to sit on the sidelines, that he's not going to look at what's coming until it's here. I find that quite frustrating, but I have to imagine pressure is mounting hourly and the Fed will be forced to cut rates soon or they will be losing any real credibility that they are worried about inflation. They have a looming financial crisis on their hands that they can relieve and allow the underlying relatively strong U.S. economy keep it's momentum.

Just the facts to state my case

-The Fed should follow the markets, the 91 day treasure closed today at 4.038% down nearly 100 basis points in a week. This is an incredible turn of events.

-The headline CPI is moderating nicely gaining only .1% . Also the chain weighted 12 month core CPI is at 1.8%, well within the feds comfort zone, so I believe this gives the Fed room to duck and cover and cut.

-Liquidity in the financial markets is almost frozen. Commercial paper is not trading as it should thus not allowing many institutions to meet their daily obligations. This is despite the Fed's various attempts in the last few days to inject liquidity.

We are what we believe

2007-08-11T10:11:00.001-07:00

The reason for birthing this blog is my contention the main stream media has been overtly negative about our economic situation the last few years and that there needed to be a counterbalance, even if it's a grass roots effort of one person and one blog at a time(read the mission statement above). I understand glorifying news to sell papers and advertising, but the last few years the negative slant has been ridiculous. If find alas, the artful prose of Brian Westury in a recent WSJ Op Ed piece describing the business that is economic news.............

Fair but Unbalanced
How the media promote false pessimism about the economy.
BY BRIAN S. WESBURY

Not that it needed any help, but the already energized debate about journalistic bias was electrified when Rupert Murdoch, owner of the "fair and balanced" Fox News Channel, struck a deal to buy The Wall Street Journal.

I have no desire to take sides in this debate, or question anyone's integrity, but my role as a business economist gives me a unique view of this subject.......

.......For example, the most recent Wall Street Journal economic forecasting survey, from July, shows that 49 out of 60 forecasters expect real GDP to grow at an average annual rate of 2%, or faster, in 2007. Of the remaining 11 forecasters, only two expect growth of less than 1%, and only one expects a recession. For 2008, the forecasters are even more optimistic, with none expecting recession......

.......Despite this, an NBC News/Wall Street Journal poll taken in late July found that 68% of Americans thought that the economy either was in recession already, or would experience a recession sometime during the next 12 months. Interestingly, this is not much of a change from the past. This same survey question has been polled at least five times since September 2002. Each time a robust majority of between 65% and 85% of respondents thought a recession either was under way or would occur within the year. Americans have been bearish on the economy for quite some time.

In short, over the past five years, forecasting economists from academia, consulting shops, financial services and industry have a perfect 5-0 record against a random sample of American citizens. It's important to understand that economists are not always right. Some even say that economists were put on earth to make weathermen look good......

For Rest of Story and Link to WSJ click here

I told You So

2007-08-10T18:06:00.000-07:00

I've been asking the Fed to cut rates since the birth of this blog. In Bernanke's stubborness to show is monetary manhood he's overtightened and held on too long causing a freeze up in the credit markets. Memo to Bernanke, it's much easier to lower the Fed Funds rate than to continually pump daily emergency liquidity into the financial markets..............

U.S. Rate Cut Looks More Likely

Central banks pumped money into distressed markets for the second day to relieve strains in money markets, while investors concluded the Federal Reserve is increasingly likely to cut rates soon and that rate increases in Europe and Japan may be deferred.

Explaining that it was "providing liquidity to facilitate the orderly functioning of financial markets," the Fed injected $38 billion, following Thursday's $24 billion. The European Central Bank, saying that its "liquidity-providing fine-tuning operation" was aimed at assuring orderly market conditions, added $83.56 billion following the $130 billion it injected to euro-zone markets Thursday.......

........Futures markets place high odds on the Fed cutting the rate target to 5% at its Sept. 18 meeting, and some possibility of a cut before then. The decision turns on how conditions in credit markets develop in coming days. If they don't improve, officials would probably be inclined to cut rates to offset the negative impact.

By JOELLEN PERRY and GREG IPAugust 11, 2007 - WSJ

Stealth Rebound

2007-08-10T06:44:00.000-07:00

It's always darkest right before the dawn.....................

U.S. MBA's Mortgage Applications Index Rose 8.1% Last Week

By Shobhana Chandra

Aug. 8 (Bloomberg) -- Mortgage applications in the U.S. rose last week by the most since January, as cheaper borrowing costs encouraged more Americans to seek loans for home purchases and refinancing.

The Mortgage Bankers Association's index of applications to buy a home or refinance a loan jumped 8.1 percent to 656.5 from 607.1 the prior week. The group's gauge of demand for credit for home purchases gained 7.4 percent, while a measure of refinancing increased 9.1 percent.

A resilient labor market and lower home prices may support sales and eventually help reduce the glut of unsold properties, economists said. A report last week showed Americans signed more contracts to buy previously owned homes in June, a sign the weakness in the housing market may not get much worse.

``We're at the bottom right now in housing,'' said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, North Carolina. ``The biggest declines are over.''

For Bloomberg Link Click Here

Place Your Bets

2007-08-06T20:24:00.000-07:00

Ahead of tomorrow's Federal Reserve meeting the Dow had it's biggest daily gain in four years. What does this mean? Maybe investors are hoping the Fed will get back out of the way of the ongoing U.S. prosperity and cut rates to a more "market" rate level. My guess is the Fed will acknowledge more of the slowing its lagging monetary tightening has produced, but still keep rates unchanged and remain "vigilant" on inflation.

I've been saying ad nauseam this year that the Fed should let prosperity run and cut rates.

Here are a few of my recent posting links:

Inflation Calm Link Here

Memo To Bernanke to Cut Link Here

And Merrill Lynch Agrees............

"Still, there were some who did expect movement from the Fed, if not now, soon. Merrill Lynch put out a report predicting that the Fed funds rate would be at 4.50% by the end of the year, from 5.25% now. "Not only do we see the Fed cutting rates sooner than the consensus and markets currently expect, but we see the cuts being deeper, with the Fed eventually lowering the funds rate to 3.75% by mid-year 2008," they wrote."-courtesy WSJ.

With the core rate nicely in the Fed's "comfort" zone and decelerating it will be only stubborness and flexing of inflation fighting Bernanke manhood muscle that will allow him to beat the vigilance drum. Soon the beat will tire and cooler heads will prevail.

Venture Capital Still Hot

2007-07-27T08:37:00.000-07:00

VENTURE CAPITAL FUNDRAISING ACTIVITY HEALTHY AND PRUDENT IN SECOND
QUARTER OF 2007

Expansion Stage Fundraising Breaks Record

" Sixty eight venture capital firms raised $7.2 billion dollars in the second
quarter of 2007 according to Thomson Financial and the National Venture Capital Association (NVCA).
This quarter’s figures represented a decline in the number of funds but an increase in dollars raised. For the
first half of 2007, venture capital firms have raised approximately 62 percent of volume raised in the first
half of 2006."

For Entire NVCA Report

Click Here

More Jobs Expected

2007-07-23T04:10:00.000-07:00

Business Economists Expect Stronger Hiring

Companies’ economists are more upbeat about hiring than they’ve been in more than a year, according to the latest quarterly survey by the National Association for Business Economics.
About 41% of respondents said they expect their firms to add employees over the next six months, up from 29% in April and 31% a year ago. About 17% predicted decreases in employment through attrition or layoffs, while the rest expected no change.

The NABE industry survey showed stronger profit margins, hiring and capital spending in the second quarter compared to the first quarter and a better outlook for the economy in the months ahead. But companies also reported cost pressures that could start weighing on their results.

More than 40% of firms reported that wages and salaries rose in the second quarter, the second-highest reading since early 2000, and 40% reported shortages of skilled labor. Other costs also surged: About two-thirds of companies said materials costs are rising, twice as high as January’s levels. Some 60% expect non-labor input prices to rise over the next three months.

Despite higher costs, only 22% of firms said they had raised prices last quarter, marking the lowest percentage in four years. And about that many expect to do so in the third quarter. Yet industry profit margins have continued increasing for four years, and a key reason may be productivity, the NABE said. About 91% of firms reported productivity gains over the last year, due largely to technology improvements or investing in more productive capital.

– Sudeep Reddy WSJ Econ Blog

Building Boom - continued

2007-07-15T06:47:00.000-07:00

As I mentioned last week, it seems most economists are baffled by the strength of employment in light of the temporary residential construction slowdown. What they don't realize is that many of these firms are general and specialy contractors that can shift their focus to commercial construction which has been booming. In this week's Businesweee Outlook James Mehrig backs up this hypothesis with data.

Builders Are Busy With Offices And Factories

Outside of housing, there's a construction boom. The protracted recession in residential building is getting all the attention, but nonresidential building shows scant signs of letting up. That's softening the blow from housing for both the industry and the overall economy.

In the second quarter, U.S. office-vacancy rates fell to 12.6%, down from 13.7% a year ago, according to commercial real estate services company CB Richard Ellis Group (CBG ). The decline came despite a 21.5% yearly increase in the amount of office space constructed during the second quarter.......

......The outlook remains upbeat. "There is still a large pool of buyers" for office space, says Ward Caswell, U.S. director of research at CB Richard Ellis. In May, new nonresidential construction starts increased at an annualized rate of 4.4% from April, while nonbuilding starts, such as constructing new highways and bridges, spiked by 43%, according to McGraw-Hill Construction.

JULY 23, 2007 - Business Outlook, James Mehring - BusinessWeek

For Full Story Businessweek subscribers link here

Building Boom - The Real Story of Construction Employment

2007-07-12T19:03:00.000-07:00

Economists and nay sayers who claim that the economy is destined for ruin due to construction layoffs from the temporary housing slowdown, forget many of these firms and their workers have multi- dimensional skill sets that transfer quite well to the booming commercial sector.........

Building boom won't quit
Commercial construction up 37% despite housing slump

Residential construction has fizzled but Sacramento is otherwise booming, with about $180 million more in non-residential building under construction so far this year compared to early 2006 -- a 37 percent increase.

The area's top general contractors report they haven't seen a decline in work that typically accompanies a new-housing slump. They're tied up with projects for years to come. ...................

............"We're booked for two years," said David Higgins, president of Harbison-Mahony-Higgins Builders Inc., the area's No. 3 contractor based on revenue of $330 million in 2006. Like other large contractors, the company does a substantial amount of work in the medical field, which hasn't been hindered by the housing market. One reason for that, Higgins said, is state seismic safety requirements. Some of the work on hospitals has already started.

"Our volume is going to be up this year and next year," said Frank DaiZovi, vice president of Turner Construction Co., the area's top builder, with $475 million in revenue last year through the Sacramento office. The company is building medical centers and schools among many other projects. ......

Sacramento Business Journal

Link Here

7/11 - Lucky Day Brings Good Tidings

2007-07-11T11:14:00.000-07:00

Housing Bottoming.............

U.S. home loan demand climbs even as rates surge

NEW YORK (Reuters) - U.S. mortgage applications rose last week, fueled by increased demand for home purchase loans even as interest rates hit their highest level in nearly a year, an industry group's data showed on Wednesday. .....
Full Story Link Here

Rebounding Nicely Next Year...........

Realtors Pare Back Forecast Again,But Project Rebound Next Year

"WASHINGTON -- The National Association of Realtors continued to pare back its forecast for existing U.S. home sales in 2007, while projecting a modest rebound for the struggling housing market in 2008.....

"This should help the overall inventory level to move steadily into a more balanced state," he added. With that in mind, NAR remains sanguine about the housing market in 2008, projecting existing home sales will rise 4.2%, to 6.37 million....

......New home sales are expected to increase at a much more modest pace, with NAR forecasting a 1.4% rise to 878,000 in 2008. "Markets that sharply reduce new construction in 2007 will generally experience respectable price increases in 2008," Mr. Yun said.".....

By BENTON IVES-HALPERIN- WSJ
Full Story Link Here

Goldilocks Keeps on Cruisin' Along

2007-07-06T07:30:00.000-07:00

Job Growth Is Better-Than-Expected

Employers Boost Payrolls by 132,000 in June,
Unemployment Rate Holds Steady at 4.5 Percent

"WASHINGTON (AP) -- Employers boosted payrolls by a better-than-expected 132,000 jobs in June, enough to keep the unemployment rate at a relatively low 4.5 percent. It was another sign that the economy is snapping out of a nearly yearlong sluggish spell.

The latest picture of the nation's employment climate, released by the Labor Department on Friday, also showed that workers saw solid gains in their wages last month.

The tally of 132,000 new jobs was stronger than the 125,000 that economists were forecasting. They did, however, predict that job growth would be sufficient to hold the unemployment rate at 4.5 percent, where it has stood for three straight months.........

.........Meanwhile, the economy added more jobs in April and May than the government previously thought. Revised figures released Friday showed that payrolls grew by a strong 190,000 in May, much stronger than the 157,000 reported last month. In April, 122,000 positions were added, which was better than the 80,000 previously reported, which had been the fewest in two and a half years."

By Jeannine Aversa, AP Economics Writer

Full Story Link Here

Venture Capital IPO's Best in 7 years

2007-07-03T20:08:00.000-07:00

Q2 IPOs hit 6-year high, raising $2.73B

"U.S. venture-backed companies raised $2.73 billion in initial public offerings in the second quarter, according to a report by Dow Jones VentureOne on Monday.

This more than doubled the $1.25 billion raised via IPO during the same period last year and was the highest amount raised since the third quarter of 2000.

Additionally, the $3.93 billion raised through venture-backed IPOs thus far in 2007 has surpassed the total amount raised through IPO in all of 2006."

Courtesy-Silicon Valley / San Jose Business Journal

Full Story Click Here

Paulson: Housing 'at or near bottom'

2007-07-02T20:40:00.000-07:00

Paulson: Housing 'at or near bottom'

But Treasury secretary gives no timetable for recovery; says financial markets remain healthy despite subprime mortgage mess.

July 2 2007: 4:40 PM EDT

WASHINGTON (Reuters) -- Treasury Secretary Henry Paulson said Monday the U.S. housing market correction was "at or near the bottom," although it could be some time before an upturn.

"In terms of looking at housing, most of us believe that it's at or near the bottom," he told Reuters. "It's had a significant impact on the economy. No one is forecasting when, with any degree of clarity, that the upturn is going to come other than it's at or near the bottom."

Courtesy CNN Money.com

Link Here

Economy Stronger and Rates Lower

2007-07-02T13:22:00.000-07:00

Some excellent indicators today of a strong economy with low inflation............The ISM came in better than expected and hit a 14 month high concurrenlty as interest rates headed lower. The 10 year dipped below 5% to 4.99%, once again signifying that there is not an inflation threat out there.

"The June ISM national manufacturing survey came in at 56.0. This was up a bit from 55.0 in May and was about in line with expectations. It represents good news in that it reflects steady and decent growth for manufacturing. A reading above 50 is intended to show growth for the sector."

-courtesy of Briefing.com

Inflation Calm

2007-06-29T06:25:00.000-07:00

I won't say I told you so, but I did...............The Fed is now being stubborn and still talking big, rate cuts should still be in play.............

Fed's Preferred Price Gauge Dips Below 2% Into 'Comfort Zone'

The Fed's preferred measure of inflation dipped below 2% for the first time in three years in May, vindicating the Federal Reserve's decision to soften its description of inflation on Thursday.

At the same time, while personal incomes and consumer spending both grew in May, they did so a bit more slowly than expected.

The price index for personal consumption expenditures rose 0.5% in May compared to the prior month and 2.3% from a year earlier. Excluding food and energy, the "core" index rose 0.1% in May and 1.9% from a year earlier, the first reading below 2% since April, 2004.

The core PCE index is the Fed's preferred benchmark for inflation. Some Fed officials say their "comfort zone" for inflation is 1% to 2%. On Thursday, the Fed left its short-term interest rate target at 5.25% and dropped its description of core inflation as "somewhat elevated," but also warned it had yet to see convincing evidence the drop in inflation was lasting.

By GREG IP and JEFF BATER - WSJ
June 29, 2007 8:59 a.m.

For Rest of Story Link Here

Homeowners Optimistic about Home Prices

2007-06-24T21:19:00.000-07:00

Homeowners upbeat despite housing slowdown

NEW YORK - Slumping home sales and drooping prices haven't diminished homeowner optimism about their own nest egg's value, a recent survey shows.

The survey by Boston Consulting Group showed 55 percent of Americans believe they could sell their house for more money now than a year ago, down slightly from the 59 percent who felt that way last summer.

Nearly three-quarters think they could sell their homes within the next six months at a price they set, and 63 percent feel that real estate is a good or excellent investment.

Associated PressJun. 24, 2007 12:51 PM

For Rest of Story Go To Link Here

Nor Cal Job Growth Quite Robust

2007-06-19T07:20:00.000-07:00

Northern California performed better than the state as a whole posting almost 60,000 new jobs in the bay area year over year and approximately 20,000 new jobs in the Sacramento region. Unemployment was also lower than the rest of the state. But the state performed well too, adding 224,000 new jobs in the last year.

For Full Story Link Here

Housing Slump Over

2007-06-13T19:48:00.000-07:00

Another Clip From Businessweek - Economic Outlook

U.S.: Is The Housing Recession Starting To Recede?
The drag on economic growth is easing, and home demand is firming up

It's still way too early to celebrate, but more and more signs suggest the housing recession is starting to ease its grip on the economy........

......Over the past three quarters the residential-construction segment of real gross domestic product has robbed 1 to 1.2 percentage points per quarter from the economy's annualized growth rate. Clearly, reports on housing remain mixed, but many economists are encouraged by key trends in housing starts, new-home sales, mortgage applications, and other indicators. Some analysts even think the second-quarter drag will be half that of recent quarters.....

.......Sales of new homes soared 16.2% in April, the largest monthly gain in 14 years, reaching an annual rate of 981,000......

....One bit of corroborating evidence that demand has stopped falling is the trend in weekly mortgage applications to buy a home, which has been on the rise since February. Through May 25, the four-week average of new filings was at its highest level since early 2006, according to data from the Mortgage Bankers Assn.

ALSO, IT APPEARS the subprime loan debacle is not causing a broader restriction on credit that would depress home sales to prime borrowers. Subprime mortgages are almost exclusively adjustable-rate loans, for which applications are down sharply over the past year. However, new paperwork for fixed-rate mortgages is up 40% from a year ago. .......

For Link and Full Story Click Here

Q2 Much Stronger than Most Expected

2007-06-11T19:23:00.000-07:00

This Business Outlook is from the latest issue of Businessweek and contains a well depicted synopsis of the recent sources of strength in the U.S. economy and a detail of the rebound in the second quarter. If it all pans out to be true, then we had a soft landing and goldilocks lives on. One thing, though, is I disagree with the author's headline and premise; that the good news entails the next Fed move is a rate hike; in fact the next move should be a cut, even inf the face of last weeks bond market activity and the 10 year treasury yield rising t0 5.15, the 9o day t-bill still signifies a cut. Anyhow, enjoy.........

U.S.: Stop Thinking Rate Cut, Start Thinking Rate Hike With economic growth rebounding, it's time to revise expectations

After a long and pleasant dream about the Federal Reserve cutting interest rates, the financial markets are beginning to wake up to reality. That is, maybe the Fed's next move will be not to lower rates but to raise them. We won't see action anytime soon, but market expectations are starting to turn 180 degrees from where they were only a month or two ago.

Most Wall Street Fed watchers who had been predicting the central bank would cut rates are already either pushing those forecasts further into the future or abandoning them altogether. And options trading in federal funds futures, which can offer a reading on what the market expects the Fed's rate will be, implies a 43% chance that policymakers will lift rates by their Dec. 11 meeting.......

......What has changed? Economic reports are making it increasingly apparent that the slowdown in the economy is over, with little if any progress on either loosening up the labor markets or bringing inflation permanently back into the Fed's comfort zone

.......ALTHOUGH WASHINGTON revised first-quarter growth in real gross domestic product down to a puny 0.6% from its original estimate of 1.3%, the overall implication for future economic growth, based on the details of the report, was clearly encouraging. The GDP numbers showed that demand from U.S. consumers and businesses grew 2.5% during the quarter, a faster annual rate than first estimated. That pace was a speedup from 1.8% during the previous three quarters and the fastest in a year..........

For rest of story link here

Auto Sales Rebounding in U.S.

2007-06-07T20:52:00.000-07:00

Here Dr James Hamilton of Econobrowser depicts the untold story of the quietly rebounding auto sector. The headline: Sales this May were better than May of 2006 and 2005..............

Link Here

Trifecta of Good News

2007-06-01T18:33:00.000-07:00

So we were treated to a trifecta of good news about the U.S. economy today.
The jobs number came in stronger than expected at 157,000, much improved over May. The ISM number came in at 55, the strongest in a year. And, as I stated again and again there is no inflation out there, and the numbers are starting to show with core inflation at 2.0% for the last 12 months, now in the Fed's "comfort zone"..........

Employers Nearly Double New Jobs in May, Hopeful Sign of Improving Economy

WASHINGTON (AP) -- The country's economic health may be improving. Employers nearly doubled the number of jobs they added to payrolls in May, allowing the unemployment rate to hold steady at a relatively low 4.5 percent. The fresh employment picture provided by the Labor Department on Friday showed job creation bounced back, with payrolls growing by 157,000 last month.....

.....The Institute for Supply Management's manufacturing index rose to 55 in May, the best showing in a year. A reading above 50 indicates growth, while a reading below 50 indicates contraction......

.......An inflation barometer -- excluding food and energy prices -- closely watched by the Fed moderated in April. The measure showed prices rising 2.0 percent over the last 12 months. That was down from a 2.1 percent increase for the 12 months ending in March.

By Jeannine Aversa, AP Economics Writer

Story Link Here

Mainstream Media Love Tech Again

2007-05-28T10:14:00.000-07:00

As I've noted in a number of posts, tech is back, big time. I believe this tech 2.0 cycle is in the early innings of a nine inning game. Gradually over the last year, wall street and the main stream media seem to have caught on. Touting tech is no longer taboo as the wounds of the dot com era have been mostly healed or forgotten. The silicon valley companies of today are better run, more tangible, and vastly more profitable than their fallen brethren of the past.

In Fierce Competition, Google Finds Novel Ways to Feed Hiring Machine

MOUNTAIN VIEW, Calif. — On a spring Saturday, about 90 students from Stanford and as many from the University of California, Berkeley, converged on Google’s corporate campus for a day of spirited team competition over mind-bending puzzles, Lego building problems and video games.

It was called the Google Games, a convivial way for the mostly computer science and engineering students to renew the Stanford-Berkeley rivalry. But behind the fun was a serious corporate recruiting event that underscores a rivalry no less intense: the tug of war for talent between Google and its competitors.

As much of the high-tech industry is enjoying a renewed boom, the competition for top recruits in engineering and other fields is as intense as ever. Companies like Google, Microsoft and Yahoo frequently find themselves going after the same candidates or recruiting in one another’s backyards. At the same time, they are running up against a myriad of start-up companies across Silicon Valley that have been pumped up with venture capital in recent years.............

Excerpts from NY Times

For Full Story Follow Link Here Link Here

VC's on the Rise

2007-05-23T06:34:00.000-07:00

The prospects for the northern California economy look very promising with venture capital on the rise. Could the number break $30 Billion this year? Remember almost 1/2 of all U.S. venture capital goes through California......

VC investments reach 5-year high nationwide

"Venture capitalists invested $7.1 billion in the United States during the first three months of the year, lifting the industry to its biggest quarter in more than five years, according to figures to be released today.

The amount spread across 778 deals represented the most venture capital to pour into start-ups in a quarter since the final three months of 2001, based on data compiled by PricewaterhouseCoopers, Thomson Financial and the National Venture Capital Association.

The first-quarter flurry represented an 11 percent increase from the $6.3 billion invested by venture capitalists at the same time last year.

The fast start indicates "this will be a breakout year for U.S. venture capital," said Darrell Pinto, Thomson Financial's director of global private equity performance. "

By Michael Lied - the Associated Press

For Link go here

Job Growth Still Strong In Sacramento

2007-05-19T08:34:00.000-07:00

Just the Facts Please:
Over 27,000 new Jobs in Sacramento in the last year at a growth rate of 3%.
Over 260,000 new jobs in California in the last 12 months.
Looks like a strong foundation for growth.

From the Sacramento Business Journal

Region still adding jobs

The four-county Sacramento metro area added 3,300 jobs in April to reach 924,600 jobs, keeping the local unemployment rate at 4.9 percent, unchanged from March.

Gains were scattered across several industries, with the biggest monthly gains in professional and business services at 1,100 and agriculture at 900, according to data issued Friday by the California Employment Development Department. There were small declines in leisure and hospitality as the ski season limped to a close; in finance because of mortgage-industry woes; and in transportation and utilities, possibly related to high gas prices.

Year-over-year, the four-county area added 27,300 jobs, a "relatively strong" 3 percent gain, EDD reported. Nearly half of the game came from growth in state and local government, public service, education and health care. The region also added 2,900 construction jobs despite the housing slowdown, although part of that gain may reflect the earlier start to the 2007 construction season compared to the rainy spring of 2006.

The local jobless rate of 4.9 percent is unadjusted for seasonal variations, and compares with an unadjusted rate of 5 percent for California and 4.3 percent for the United States. California's seasonally adjusted rate for April was 5.1 percent, up from 4.8 percent in March; California added 7,400 jobs to reach 15,250,200, state officials reported. That reflects growth of more than 266,000 jobs year-over-year, up 1.8 percent.

Sacramento Business Journal - 11:56 AM PDT Friday, May 18, 2007

Story Link Here

Reasons to Feel Good

2007-05-16T20:52:00.000-07:00

Since my last post we've been treated to a few "bright" spots in some recent economic indicators.

First of all, as I've reiterated dozens of times............inflation was not and is not a threat. The Fed should be preparing to cut rates to meet the market . Though they will continue to talk big, I see rate cuts coming starting in Q3.

Here are the recent numbers on our tame inflation picture:

May 11th - Core PPI - Expected: .2% - Actual .0% - that's right nada

May 15th - Core CPI - Expected .2% - Actual .2% - with the 12 month number at 2.1% - just a rounding error from the Fed's "comfort" level.

Excerpt Regarding Inflation from May 15 WSJ -

"Early Tuesday, the Labor Department said the April consumer price index rose 0.4%, but the core CPI, which excludes volatile food and energy prices, advanced just 0.2%. The data, which largely matched Wall Street forecasts for a 0.5% CPI increase and 0.2% core rise, suggest inflation remains tame. That reinforced a growing belief among investors that Federal Reserve policy makers will cut rates later this year.

"I read [the CPI data] as very bullish for the economy," said Timothy Rogers, chief economist at Briefing.com. "I suspect that the reasons for the Fed to tighten [credit by raising interest rates] have largely disappeared." Mr. Rogers expects central bankers to cut their target lending rate by a quarter percentage point in the fourth quarter.

Lower interest rates make borrowing cheaper and spur investment, so hopes for lower rates tend to boost stocks. However, they can also fuel inflation, which until recently was higher than the Fed's supposed comfort zone. Now that price growth seems to have slowed, the Fed may feel freer to soften its vigilant stance on inflation and perhaps even cut rates.

In addition, a Fed reading on the health of the New York manufacturing sector met expectations, increasing from April and signaling a possible rebound in manufacturing overall."

And last but not least the backbone of our economy retrenched in April. Industrial production knocked the cover off the ball today coming in at .7%, significantly higher than the .2% expected.

Memo To Bernanke: It's Ok to Cut Too

2007-05-07T20:32:00.000-07:00

I have reiterated ad nauseam on this blog that inflation is not a threat nor has it been at any time in recent memory. The Fed has successfuly snuffed out any chance of inflation and then some. Not long ago I mentioned as evidence the flat yield curve and the Tips spread. Not convinced? How about the two year treasury yield suggesting the fed is at least 75 basis points too tight. Another back of the napkin calculation taking Q107's nominal GDP growth of 4.7% and subtracting the Fed Funds rate of 5.25% causing a trend in the economy toward negative growth of almost 3/4%. Negative growth means monetary policy is too tight. In other words.............the only thing that can derail this goldilocks economy is an overzealous Fed targeting housing (succeeded) and employment (succeeding - I'm a little troubled by April's weak job number especially the downward revisions for Feb and March). Do they realize their policy has a lagging consequence? I'm starting to wonder. So as many are suggesting the Fed should declare victory on inflation and worry about growth again. I believe the Fed target rate should hit 4.5% by the end of the year. Bookmark this now and come back and see..........

Upside Surprise

2007-05-02T19:33:00.000-07:00

Some great news that might well depict and end to the argument of Goldilocks and a soft landing. Factory orders were 50% higher than expected, durable good orders exceeded expectations, and the ISM number was the best in 11 months.....

U.S. Factory Orders Rise Sharply
Orders to U.S. Factories Jump in March by the Largest Amount in a Year

"WASHINGTON (AP) -- Orders to U.S. factories surged in March by the largest amount in a year, an encouraging sign that the recent slowdown in manufacturing may be ending.

The Commerce Department said Wednesday that total factory orders rose by 3.1 percent in March, pushed higher by a big jump in demand for commercial aircraft and the biggest rise in the category that tracks business investment in new equipment in 2 1/2 years.

The increase was far better than the 2 percent figure that analysts had been expecting and offered hope that manufacturers were beginning to experience rising demand after a recent weak period brought on by troubles in housing and auto sales.

The good news on factory orders followed a report from the Institute for Supply Management that its closely watched gauge of manufacturing activity rose to 54.7 in April, the best showing in 11 months......."

By Martin Crutsinger, AP Economics Writer

For Link Click Here

London Home Prices on Fire

2007-04-29T12:38:00.000-07:00

Despite recent interest rate increases in the UK, home escalation continues proving that the fundamentals of income growth and supply and demand are the key factors..........

London Homeowners Reap $150,000 as U.K. Prices Jump (Update3)

"April 16 (Bloomberg) -- London homeowners gained an average 76,000 pounds ($150,000) on the value of their property in the past year, triple the median salary, as U.K. house prices rose the most since 2004, the country's biggest property Web site said.

Asking prices for a home in the British capital reached an average 379,846 pounds in the four weeks through April 7, up 25 percent from a year earlier, Rightmove Plc said today. The cost of an average house in the U.K. rose 3.6 percent on the month and 15 percent from the previous year, the most in almost three years.

Three interest-rate increases since the start of August have failed to contain a housing boom that has driven up the price of a parking space in the London borough of Kensington and Chelsea to equal that of a home in the Midlands. Soaring property values are stretching mortgages to six times salary and prompting young people to live at home with their parents for longer. ........"

By Jennifer Ryan - Bloomberg

Story Link Here

California High Tech Hot

2007-04-24T18:29:00.000-07:00

Don't look now, but the hot Silicon Valley job market is gaining more and more recognition.....

"As might be expected in the state that houses the Silicon Valley, California employs more technology workers that anywhere else in the country and pays them the most.

A report released Tuesday by AeA, formerly the American Electronics Association, said California leads the country in the number of high-tech jobs (919,322), the most tech jobs added (14,402) and the highest average annual wage for a position in the technology industry ($95,294).

In 2006, the report says, the high-tech industry added nearly 150,000 jobs for a total of 5.8 million in the United States. This growth is faster than the 87,400 jobs added in 2005, and the two years of growth represent an increase of four percent. ......

.....The leading states by high-tech employment in 2005 were California (919,300), Texas (445,800), New York (299,900), Florida (276,400), and Virginia (261,000). 2005 data are the most recent available at the state level. "

Silicon Valley / San Jose Business Journal - 12:37 PM PDT Tuesday, April 24, 2007

Story Link Here

Growth Mode Again in Silicon Valley

2007-04-23T19:14:00.000-07:00

It's been 6 years in the making but Silicon Valley has rebounded and is firmly in growth mode again. As it did in the last cycle, this economic prosperity will work it's way through the rest of northern California and the central valley........

In growth mode, Cisco to lease Milpitas campus
410,000-SQUARE-FOOT COMPLEX EMPTY SINCE IT WAS BUILT IN '00

"Following in the footsteps of several valley high-tech leaders, Cisco Systems is acquiring more space to house its growing workforce......

...."It's fair to say we've been hiring since 2004," said Blum, who said part of the growth is due to the company's acquisitions.

In January, Cisco reported that it employs almost 55,000 people worldwide, 15,000 of whom work in the valley. The total represents a net increase of 2,700 from the previous quarter......

.....Cisco's new lease is another sign of the valley's economic resurgence, already illustrated by land and building acquisitions by Apple, Google and Yahoo. Last April, Apple announced plans to buy 50 acres in Cupertino for more than $160 million and just acquired another site earlier this month. In June, Google bought $319 million worth of real estate in Mountain View's Shoreline Technology Park.

And in July, Yahoo worked under the radar to buy 46 acres in Santa Clara for about $50 million....."

Link Here

By Katherine Conrad
Mercury News

CA Job Growth Trumps Bearish Forecasts

2007-04-21T09:10:00.000-07:00

Excerpts from the Sacramento Bee

State economy weathers storm
Unemployment rate is steady; jobs increase in capital area

"In the face of a housing market downturn, California's economy is holding its own. Sacramento's seems to be doing better than that.

Statewide unemployment held steady at 4.8 percent last month, as employers added 18,500 jobs, the Employment Development Department reported Friday. It was a good but not great month for job creation and was slightly behind the pace of a year ago, said Howard Roth, the state's chief economist.

Sacramento's unemployment, meanwhile, dipped four-tenths of a percent to 4.9 percent. More important, the region's payrolls increased by 5,400 jobs. .....

.....The construction sector added 1,700 jobs......Commercial and industrial construction are doing very well, said EDD labor market consultant David Lyons.....

......Overall, payrolls have increased by 2.2 percent in the past year, another indication of the economy picking up some steam. Over the past few months, year-over-year job growth had fallen below 2 percent....."

By Dale Kasler - Sacramento Bee

Link To Story Here

Sheep and Foreclosures - A Sign of Good Things to Come

2007-04-17T19:30:00.000-07:00

Warren Buffett didn't make billions by betting on the obvious. Most of the wealthiest Americans made their great wealth by taking risk as contrarians against the sheep and herd mentality of their time. You can't beat the market unless you are a step ahead of it............

From Bizjournals.com 4/17/07

"The number of California homeowners getting default notices last quarter reached its highest level in almost 10 years.........Last quarter's default level was the highest since 47,912 default notices were recorded statewide in the second quarter of 1997. Defaults peaked in first quarter 1996 at 61,541."

Ok, now let's get a little perspective by looking at headlines and analysis from 1997.........

From Dataquick News January 1997

"Lenders started foreclosure proceedings on 39,495 California homeowners during last year's fourth quarter. That was up 1.0 percent from 39,106 for the third quarter and up 4.9 percent from 37,648 for 1995's fourth quarter (see chart), according to DataQuick Information Systems.
The quarterly numbers peaked at 44,686 during last year's first quarter (Q1-06) when lending institutions implemented stricter policies in their handling of mortgage delinquencies. "

So then, what did California prices do when mortgage defaults peaked in 1996? Well let's take a look......

1996 $177,270 -0.5%
1997 $186,490 5.2%
1998 $200,100 7.3%
1999 $217,510 8.7%
2000 $241,350 11.0%
2001 $262,350 8.7%
2002 $316,130 20.5%

(source realestateabc.com)

Just like condo conversions signaled the peak of the housing market in 2005, it appears notices of default and foreclosure activity coincide with the bottoming of the market within a year or so. Mind you, California also suffered significant job losses in the early to mid 1990's, not the case now, where a quarter of a million jobs were created in last year. So this correction and snap back will be quicker than in the mid 90's. So are you a sheep or? See below to see how quick the headlines turn..............

Bay Area home prices jump May, 1997

The median price paid for a resale house in the nine-county Bay Area was $260,000 in April. That was up 8.8 percent from $239,000 in March and up 11.6 percent from $233,000 for April last year (see chart), according to DataQuick Information Systems.

SoCal Home Sales and Prices Surge August, 1997

The median price paid for a Southern California home was $169,000 last month, up 4.3 percent from $162,000 a year ago. The year-over-year price jump was the strongest since July 1991 when prices jumped 4.5 percent during a post-Gulf War wave of optimism about the economy.

SoCal Home Prices Surge December, 1997

The median price paid for a Southland home was $172,000 in November. That was up 0.6 percent from $171,000 for October and up 6.8 percent from $161,000 for November last year.

Quotes and Headlines courtesy of DQ News Archive

Inflation still not a threat - Again

2007-04-17T17:07:00.000-07:00

Sorry for the intermittent recent posts, been crazy busy at work, but more importantly let's talk about inflation, or the lack thereof. The core CPI rate increased only 0.061% in March, much less than expected and a great deal less than last months .02% gain. To cut to the chase there is basically no core inflation except for some lagging data derived from the owner's equivilant rent calculation from housing. Without all the fancy analysis just look at two things the TIPS spread (retreating) and the 10 year treasury (retreated to 4.68% today). The markets aren't seeing any inflation. So Chairman Bernanke, please lower the Fed Funds rate to match the market and keep prosperity rolling - 4.5% sounds good for now.

Some excerpts from leading ecnomists courtesty of the WSJ -

"There is no genuine inflation 'problem.' As we have argued on numerous occasions, we have been witnessing a reasonably sharp cycle in shelter costs particularly owners equivalent rents [an estimate of how much homeowners would charge to rent their residence] (which account for a huge 30% of core CPI). When OER inflation was low in 2003-2005 as residential house prices boomed, core CPI was flattened. When OER accelerated through 2006 even as residential house prices flattened out, all of a sudden a 'core' inflation problem emerged… If this economy has an inflation 'problem,' it is only coming from one source -- rents i.e. the imputed cost of housing." - Richard Iley, BNP Paribas

"Excluding the gain in OER, the core CPI was flat, suggesting a flat reading or possibly a 0.1% gain for the Fed's preferred inflation reading, the core PCE deflator. Gains in OER appear to have peaked in November of last year, and today's data suggests a deceleration from housing related-effects is underway. The core CPI itself appears to be decelerating, bucking a seasonal bias upwards in March, and is up 2.45% over the past year. Today's core inflation news is comforting. " - Steven Wieting, Citigroup Global Markets

For WSJ subsribers link to the full analysis and story here Link

Jobs Stronger Than Expected

2007-04-06T07:31:00.000-07:00

Job Growth for March came in better than expected. In addition, January and February job numbers were revised up again.......

Jobless Rate Dips to 4.4 PercentFriday
Unemployment Rate Drops in March As Companies Add 180,000 Jobs

WASHINGTON (AP) -- Employers ramped up hiring in March, driving the unemployment rate down to 4.4 percent, matching a five-year low. It was a surprisingly strong performance in an economy that has otherwise shown signs of sluggishness recently.

The new snapshot, released by the Labor Department on Friday, also showed that employers boosted their payrolls by a strong 180,000 in March, the most since December. Workers' also saw their paychecks get bigger. The fresh figures suggested that companies are not feeling a need to dramatically clamp down on hiring in the face of the slower overall economic activity and the deep housing slump.......

.......The report was stronger than economists were expecting. They were calling for the economy to add around 135,000 new jobs in March, and for the unemployment rate to actually edge up to 4.6 percent.

The 4.4 percent unemployment rate, which dropped down a notch from 4.5 percent in February, matched the rate in October, which was the lowest in five years.

Friday April 6, 10:02 am ET By Jeannine Aversa
Associated Press Economics Writer

For Story Link Here

Just The Facts Please

2007-03-24T12:05:00.000-07:00

Here are some interesting statistics from Larry Kudlow's latest show also posted from his blog Link Here

Kudlow's February's Facts that shows the "Goldilocks" economy is still in play:

- This week stocks had their best peformance in 4 years

- 152,000 jobs were created in the U.S. just slight below the last 6 mos average

- Industrial Production was up 1% last month alone

- Housing starts were up 9%

- The National Association of Realtors reported existing home sales were up 3.9% , the largest monthly gain in three years and the third consecutive monthly gain.

- The National housing affordability index is the most affordable in 2 years

California Job Market Keeps Rolling

2007-03-23T19:26:00.000-07:00

For those of you who were ready to write off the California economy and job growth because of last months seasonal aberration wait........................................

Don't count your chickens before they hatch. The 5th largest economy in the world added 27,600 jobs last month for a total of 261,000 new jobs in the last twelve months. With all of those jobs, is it possible that we are near the end of the housing slump? Could a buyer's pent up demand bubble be forming from short term fear and pessimism due in part to media fear mongering? Time will tell................

For the Official Stats from the California Emplyment Development Department click Link Here

Time for the Fed to Cut

2007-03-21T20:48:00.000-07:00

Memo to the Fed. Inflation is a lagging indicator, job growth is a lagging indicator. It's becoming obvious that the only thing that could derail this Goldilocks economy is an overzealous Fed worrying about non existent inflation. The last six months average of core inflation is 2%, well within the Fed's comfort level. For greater articulation read below........

Why the Fed Didn't Raise Interest Rates
Inflation is running above the levels that Bernanke has targeted, but he's holding off on hiking rates because of the risks

From Peter Coy - Businessweek 3/21/07

Imagine you're driving a car with a blacked-out windshield and a loose steering wheel. Now imagine that your car is the $13 trillion U.S. economy. That should give you some idea of what it feels like to be Federal Reserve Chairman Ben S. Bernanke. Yes, in a word: scary.

Bernanke and the other members of the Fed's Open Market Committee pleased the stock market Mar. 21 when they voted to keep the federal funds rate at 5.25%, and slightly softened their anti-inflation stance in the accompanying statement.....

...Accounting for Lag Time

Give credit to Bernanke: He still wants to get inflation back under 2%, but he's willing to let it happen a little more slowly than he expected when he took over as chairman in February, 2006.
The U.S. economy really is like that car with the blacked-out windshield (so you can't see ahead) and with loose steering (so there's a big delay between the time you turn the steering wheel and the time you get results).

Inflation, in particular, responds with a long lag to whatever the Federal Reserve does. It stays high for awhile even after the economy has begun to slow. If the Fed didn't compensate for the lag, it might oversteer and put the economy in a ditch. Recognizing that, Bernanke and the other FOMC members are willing to allow some extra time to see if the tightening to date, from a funds rate of 1% to a current rate of 5.25%, will gradually cool inflation.

The last recession shows how long you sometimes have to wait to see inflation finally fall. In the late 1990s, the Fed raised rates nearly two percentage points to stamp out inflation. But the first victim of the rate hikes was growth. The economy tipped into a recession in March, 2001. Even then inflation stayed stubbornly high. Core inflation excluding food and energy prices didn't fall below 2% until January, 2003, notes David Rosenberg, chief North American economist of Merrill Lynch (MER). By then the Fed had already slashed interest rates more than five percentage points. A good thing, too—if the Fed had waited to cut rates until inflation had already fallen, the 2001 recession would have been much longer and deeper.

Subrime Bigger Hoax than Y2K?

2007-03-14T19:45:00.000-07:00

Put me in the camp that agrees this subrime headline grabbing issue is a big hoax to get eyeballs and sell fear..........

Subprime concerns overblown, fund manager says
Shakeout will be 'most hyped disaster that never occurred since Y2K'

SAN FRANCISCO (MarketWatch) -- The shakeout in the subprime-mortgage business won't escalate into a disaster capable of undermining the U.S. housing market and the economy, the chief investment strategist at fund-management firm DWS Scudder said Monday. ...

The subprime sector is too small to have such a big impact, according to Robert Froehlich, who is chairman of the investor-strategy committee at DWS Scudder, a division of Deutsche Bank AG ....

...."For all this to occur, the subprime-mortgage collapse has to be big enough and important enough to set the wheels in motion. And the fact is that it isn't," he wrote in a market commentary Monday. "It will be the most hyped disaster that never occurred since Y2K." ...

....Froehlich said Monday that, like Y2K, investors are worrying too much about a subprime-fueled disaster that probably won't happen.

"The subprime-mortgage market is big, but it's not big enough to push the U.S. economy into a recession by causing a credit crunch," he added. .......

By Alistair Barr, MarketWatch

Read this story Link Here

Soft Landing or No Landing at all?

2007-03-09T06:27:00.000-08:00

From the Wall Street Journal

U.S. Payrolls Grow by 97,000As Jobless Rate Slips to 4.5%

"U.S. payrolls expanded last month at their slowest pace in two years as a steep drop in construction payrolls offset strength in the service sector.

However, employment in previous months was revised higher, the unemployment rate fell and hourly wages posted a strong gain, suggesting that the economy remains in solid shape despite a recent spate of weak data. The jobs figures should dampen expectations of any Federal Reserve rate cut in the near term. Fed funds futures contracts have recently priced in a rate cut as early as the second quarter........

Nonfarm payrolls increased 97,000 in February after growing an upwardly revised 146,000 in January and 226,000 in December, the Labor Department said Friday. Last month's gain was the slowest since January 2005. Previous reports showed job growth of 111,000 in January and 206,000 in December.

The unemployment rate fell 0.1 point last month to 4.5%. Average hourly earnings increased six cents, or 0.4%, to $17.16. That was up 4.1% from a year earlier.

The February payroll gain was in line with Wall Street expectations of a 100,000 rise. Other parts of the report were stronger than expected, however. Economists had expected a 4.6% unemployment rate and 0.3% rise in wages.

The jobs data should ease fears that a recent soft patch in data will turn into a more pronounced downturn. Gross domestic product grew just 2.2% during the fourth quarter, and recent data have pointed to similar sub par growth in the first quarter as well. ..........."

By BRIAN BLACKSTONE and JEFF BATER

California No. 2 for worldwide exports

2007-03-06T17:35:00.000-08:00

From the Sacramento Business Journal

California set a record for its export sales in 2006, Northern California World Trade Center officials said Monday.

California exported merchandise last year valued at $127.7 billion, a 9.3 percent increase over 2005. The amount does not include export of services. The Golden State's four largest export sectors were computer products, machinery, transportation equipment and chemical products, the local trade group reported. Computer and electronic products came in with a value of $44.5 billion. Machinery was next with $14.8 billion and transportation equipment and chemical products followed with $13.5 billion and $8.6 billion, respectively.

California's top export markets were Mexico, Canada, Japan and China. Mexico held its top spot for California exports with sales of $19.6 billion. This was the first time Canada, with $14.2 billion, surpassed Japan in the state's export market rankings. Japan ranked third with $13.9 billion, and China finished fourth with $9.9 billion. Exports from California to China have nearly tripled since 2000, expanding from $3.5 billion. California is the top U.S. exporting state to China......

For rest of arcticle click Here

U.S. Wages Skyrocketing

2007-03-06T06:26:00.000-08:00

Like past economic cycles strong economic and corporate growth leads to higher wage growth. So all the naysayers have relingquished first the "jobless recovery", and now the "unequal recovery" arguments that are going the way of the dodo bird.

Worker Productivity, Salaries Increase

Worker Productivity Jumps 1.6 Percent; Employee Wages, Benefits Climb 6.6 Percent

WASHINGTON (AP) -- The efficiency of workers rose at a modest pace in the final three months of last year, far below the gain originally estimated, while worker wages and benefits soared.

....The report showed that labor costs for each unit of output soared by 6.6 percent, far higher than the 1.7 percent increase initially reported.....

.....It was the biggest quarterly increase in labor costs since a 9.1 percent surge in the first three months of 2006. Both gains were attributed in large part to big bonuses paid to high-income workers....

Associated Press - By Martin Crutsinger, AP Economics Writer

Link to story here

Fed Officials Reiterate Confidence in U.S. Economy, Markets

2007-03-05T19:41:00.000-08:00

From Bloomberg Financial News:

March 5 (Bloomberg) -- Federal Reserve officials reiterated the U.S. central bank's confidence in the economic outlook today and played down last week's decline in share prices.

The three officials, who all vote on interest rates this year, reinforced Chairman Ben S. Bernanke's message at a Feb. 28 congressional hearing that there's a ``reasonable possibility'' growth will pick up later this year.

....The Fed's expectations for growth have ``not materially changed,'' Fed Governor Randall Kroszner said in Washington. Governor Kevin Warsh said ``the U.S. economy continues to demonstrate extraordinary resilience, no doubt supported by the ability of financial markets to absorb substantial shocks.''

St. Louis Fed President William Poole said history may prove that last week's slump was ``hardly a wiggle in the value of equities.'' He added that financial markets indicate that investors, like the Fed, don't anticipate a recession.........

....``We do not see a recession on the horizon,'' Poole said to the Global Interdependence Center Abroad in Chile conference in Santiago, Chile today. He said the current slump in the housing industry has yet to affect the broader economy. ``We have seen little fallout from the end of the housing boom,'' he said. ....

By Steve Matthews and Anthony Massucci

Article Link Here

CA and So Cal Job Market En Fuego

2007-03-03T06:50:00.000-08:00

Job Market hot, hot, hot!

The California job market was even stronger than most thought in 2006. The state revised the job numbers and "found" an additional 70,000 jobs statewide to bring the revised total to over 274,000 jobs created in 2006. Especially buoyant was Los Angeles County and the ascent of high paying jobs.

Quotes from this morning's LA Times article Link Here

"Southern California's job engine performed much better than previously believed last year, with a good portion of the growth in skilled, high-paying positions,....."

"..The sectors that grew the fastest in Los Angeles County, including accounting, scientific and technical consulting, and engineering, strained an already tight labor market for highly skilled, high-wage workers....."

"Overall, I see this revision as a very positive one for the future of where L.A. is going," he said. "I think the L.A. economy overall is still creating high-end jobs."

"Now you have the international trade sector going like a house on fire," Kyser said. "And it was an extremely strong year in travel and tourism

From LA Times 3/03/07

By Lisa Girion, Times Staff Writer

The Prosperity Boom

2007-03-01T20:44:00.000-08:00

Larry Kudlow discussed the "greatest story never told" in an Op Ed piece in today's Wall Street Journal. It's a great read.........

Link Here

The Market Calms Down - Bernanke Helps

2007-02-28T13:23:00.000-08:00

The correction in yesterday's stock market is a reminder that markets don't move up forever in lockstep with low volatility and complacenty, and that some retrenchment is always necessary and healthy. After the settling out today it was a good wake up call that risk does exist, but also that long term fundamentals are in tact for sound U.S. economic growth.

Fed Chairman Says Markets Working Well - Associated Press - February 28,2007

Bernanke Says Markets Appear to Be Working Well With No Big Change in Economic Outlook

"WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that the administration and federal regulators are closely monitoring financial markets in the wake of the biggest sell-off in stock prices in more than five years but so far the markets appear to be "working well.".....

....In what might have been a reference to Greenspan, Bernanke testified at one point that there did not appear to be a "single trigger" to Tuesday's sharp sell-off, which saw the Dow Jones industrial average fall by 416.02 points.

Some analysts believe that Greenspan's comments over the weekend that there was a possibility of a recession by the end of the year along with a sharp drop in China's Shanghai stock market contributed to Tuesday's big drop on Wall Street, which saw the Dow Jones industrial average fall by 416.02 points.

But Bernanke let members of the House Budget Committee know that he didn't intend to assign blame.
"There didn't seem to be any single trigger of the market correction we saw yesterday," he said in response to a question. "I don't think it would be useful for me to try to parse the movement into the components associated with different pieces of news or pieces of information."

On Wall Street, investors seemed to take comfort from Bernanke's comments that there was no single trigger to the big selloff. At midday, the Dow Jones average was up 42 points after having been up by more than 100 points earlier in the session......

....He said there had been "no material change in our expectations for the U.S. economy since I last reported to Congress" when he delivered the Fed's latest economic outlook two weeks ago.

"We are looking for moderate growth in the U.S. economy going forward," Bernanke said. He said that if current corrections under way in housing and the amount of inventories being held by business stabilize in coming months, the economy should begin to rebound from its current slowdown by the end of the year....

Some key points in Bernake's testimony today. He stated that he didn't see the isolated subrime mortgage market issues spreading into a bigger problem , also there was a chance that if housing stabilizes the first half of the year (fedspeak for it's stabilizing - similar to what Alan Greenspan has said a number of times that housing has stabilized) that the U.S. economy could strenthen at mid year. He also reiterated that liquidity is not a problem in the credit markets, so that should put a lot of fears to rest about a credit run or anything resembling an S&L type situation.

Housing Turnaround and Consumer Confidence at 5 Year High

2007-02-27T10:41:00.000-08:00

From the Associated Press
Sales of Existing Homes Jump in January

"WASHINGTON (AP) -- Sales of existing homes rose in January by the largest amount in two years, raising hopes that the worst of the severe slump in housing may be coming to an end. Median home prices, however, fell for a sixth straight month.

The National Association of Realtors reported Tuesday that sales of previously owned homes rose by 3 percent last month, the biggest one-month increase since a 3.3 percent advance in January 2005, a time when housing was roaring toward the peak of its five-year boom....."

And consumer confidence is up.....

In other economic news, the Conference Board, a private research group, said consumer confidence rose in February to its highest level in more than five years.........The New York-based Conference Board said its confidence index increased to 112.5 this month, a bigger than expected rise from a February reading of 110.2. The gain reflected increased optimism about jobs and business prospects. Link Here

Hit the Links on Saturday

2007-02-24T06:35:00.000-08:00

Sick of all the bad news about our national and California economy portrayed by the mainstream television media? Here are some links that will cheer you up. Things are pretty good out there. Also note, fundamentals in the longer term always trump short term fear.

Januuary 2007 New Homes Sales in Sacramento Best since June 2005 Link Here

Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco, sees stabilization for housing and growth for economy Link Here

Small firms' job creation plans at near-record high
Link Here

Silicon Valley Rebounds, Led by Green Technology
Link Here

Bay Area job market surging
Link Here

Housing Market Heats Up Again in New York City
Link Here

Bay Area Luxury Housing Hot

2007-02-21T18:30:00.000-08:00

In the $1 million-plus market: `plenty of buyers,' not enough houses

Bay Area luxury-home prices were up 1.5 percent in the fourth quarter of 2006 compared with a year earlier. However, they dropped 1.5 percent from the previous three months, according to a report released today by First Republic Bank.

According to the banks' Prestige Home Index, the average price of a luxury home was $2.92 million -- or, to put it simply, a lot more than most of us can afford. The banks' survey considers home prices in the Bay Area's ritzier communities, specifically: Alamo, Atherton, Belvedere, Danville, Healdsburg, Hillsborough, Lafayette, Los Altos, Los Gatos, Mill Valley, Moraga, Orinda, Palo Alto, Piedmont, Portola Valley, Ross, St. Helena, San Francisco, Saratoga, Sonoma, Tiburon and Woodside.

Luxury homes are defined as those with at least 3,000 square feet, three to six bedrooms, and three to six bathrooms. And if it's worth less than $1 million, it doesn't make the cut.

Just how is the market doing in that rarefied space? ``For anything under $5 million, buyers are chomping at the bit because there is so little inventory,'' Lea Ann Fleming of McGuire Real Estate in San Francisco said in a statement provided by the bank. ``There are plenty of buyers, but there just aren't enough houses.''
The bank's survey found similar trends in the Los Angeles and San Diego areas, with prices down in the fourth quarter from the previous three months, but up from a year ago.

For more real estate news, check out our Square Feet blog.

By Frank Michael Russell
Mercury News

So How is the Economy Doing?

2007-02-20T18:47:00.000-08:00

Last Week we were treated to a bounty of economic numbers about the U.S. economy not too mention Bernanke's testimony in front of Congress. So what did we learn and which numbers were important?

Retail Sales - Came in lighter than the expected .4% at .3% for January, but December was revised up to 1.3% from 1%. Perhaps some sales were accelerated to December, but I wouldn't read too much into this number until we see a trend.

Core PPI - The Core number came in at the expected .2%. This is significant as it continues a decelerating trend that shows inflation is in check and gives the Fed room to relax.

Housing Starts - Housing starts came in really lite at just over 1.4 million in stark contrast to what the market expected at 1.6 million. Well this is great news to me. It demonstrates builders adjusting supply to current market conditions. As the current housing market is going through a "speculative supply correction", the quicker inventory goes down, the sooner the market will come into balance. So low starts are a good thing.

Industrial Production - Was negative at -.5% giving way to some slowing. This helps inflation, but continued decleration would not be welcome, especially since 4 out of the last 5 months have disappointed.

Capacity Utilization - For January was 81.2% less than the expected 81.7% and less than the previous month's 81.8%. Again, in my opinion this gives the Fed room to duck and cover with waning inflation pressures.

So what's the overall prognosis? Steady as she goes, with no alarm bells, a bit more slowing than expected, and enough to let the Fed get out of the way and watch for awhile, perhaps the reason the Dow Jones hit another all time high and the major indexes all moving up 1% for the week. And is inflation in check? Well the 10 year treasury rate backed down below 4.7% to finish the week at 4.69%.

Shrinking Deficit

2007-02-13T20:27:00.000-08:00

Good news about the budget deficit courtesy of Larry Kudlow's blog......

REVENUE GUSHER

Compliments of our friend, Michael Darda, chief economist at MKM Partners

Treasury data for January released yesterday afternoon showed that tax receipts continue to roll in at a rapid rate, which has reduced the fiscal deficit to $191.9 billion or 1.4% of GDP, well below the 2.3% average since 1970. At the current pace, the budget could move back into balance as early as May 2008. ........

Read more at this Link here

Big Week of Economic Numbers Ahead

2007-02-11T13:18:00.000-08:00

There is a lot of data about the U.S. economy coming to us this week. So far the data this young year has given us a stronger economy, more jobs, lower energy prices, and lower inflation than expected. Important figures to watch this week include:

Retail Sales
Core PPI
Housing Starts
Industrial Production
Capacity Utilization

It will be interesting to see this week as the numbers roll in if we continue the greatest story never told (to quote Larry Kudlow), the american economy.

Not to mention, Big Ben Bernanke will be on the hill this week testifying to Congress. Stay tuned for details and analysis....................................

Economic Calendar Link

DB

USA Today - 96% of Economists say Housing Bottoming This Year

2007-02-06T20:09:00.000-08:00

Here is why you can't just read the attention grabbing headline. This from the USA Today "Most agree: Housing crunch isn't over yet". Well that sounds really awful, right? Not if you read the article. Excerpt below......................

"WASHINGTON — Housing is proving to be one of the biggest wild cards in the economy in 2007 as analysts are deeply divided about whether the worst in the downturn is over or there is much more pain to go.
Only 9% of economists say the housing decline ended in 2006, according to a USA TODAY survey of 55 economists taken Jan. 18-24. Another 42% said the downturn will end in the first half of the year, and 45% said housing will bottom out in the second half."

Well excuse me but let's look at what the economists are saying. More said that housing already bottomed in 2006 or will bottom in the first half of 2007 than won't. And the "down side" nearly all of the rest of the economists say it will bottom in the second half of 2007. So add it up 96% say bottom is near so as a would be home buyer better to buy at the bottom than the top. More excerpts below.

"Seeing things stabilize and hearing reports that housing is stabilizing is good for consumer confidence," he says.

The NAR's index of pending home sales, which is adjusted for seasonal variations, rose in December at the fastest pace since March 2004. The level of unsold homes on the market appeared to have peaked in July, the group says. "

Contributing: Barbara Hansen, Noelle Knox - USA Today - Feb 5, 2007

Unexpectedly Great GDP Number and Falling Inflation

2007-01-31T06:52:00.000-08:00

So we have great news on the economy this morning. The fourth quarter GDP number came in much better than expected and the inflation number dropped more than it had in 50 years. So strong growth, low inflation, As Larry Kudlow put it "Goldilocks Lives".

Excerpts from the Wall Street Journal

U.S. Economy Grows 3.5%; Inflation Gauge Falls Sharply

"The U.S. economy resurged at the end of 2006, overcoming a slump in housing as consumers, sustained by lower energy prices, ramped up spending.

Gross domestic product climbed at a seasonally adjusted 3.5% annual rate October through December, the Commerce Department said Wednesday in its first of three readings on fourth-quarter GDP. That was up from 2% in the third quarter. A price inflation gauge within the report posted its biggest drop in 52 years.

For the whole year, GDP, which acts as a scoreboard for the economy by measuring all goods and services produced, advanced 3.4%, compared to a 3.2% increase in 2005 and 3.9% growth in 2004.....

.....Inflation gauges within the GDP report indicated prices softened significantly during the fourth quarter. The government's price index for personal-consumption expenditures actually fell, slipping by 0.8% after rising 2.4% in the third quarter and 4.0% in the second quarter. The decrease was the biggest since 1.2% in third-quarter 1954."

And below gives the Fed room to duck and cover........

"The PCE price gauge excluding food and energy rose 2.1%, after increasing 2.2% in the third quarter. The price index for gross domestic purchases, which measures prices paid by U.S. residents, inched 0.1% higher, after going up 2.2% in the third quarter. The chain-weighted GDP price index increased 1.5%, after rising 1.9% in the third quarter."

By Jeff Bater - WSJ

Housing Market Stabilzation

2007-01-30T21:24:00.000-08:00

Dr. James Hamilton has some very insightful analysis on what he called a few months ago the bottom and stabilization of housing. Though it has almost become nauseating attempting to debunk the housing bubble devils, it is such a big part of the American psyche and perceived mantra that I feel it is my duty to shed some light on their one sided ponent views.

Decide for yourself by reading the link below.

(The housing market and the Federal Reserve)

Silicon Valley Has Most Job Growth since 2001

2007-01-28T07:53:00.000-08:00

As I have noted in two of my previous posts (Bay Area "Percolating" With High Paying Jobs) and (Venture-capital funding best in five years) the job juggernaut in the bay area that is Silicon Valley is on a comeback. From information technology and Web 2.0, to going green and energy innovation, the bay area is in the first inning of a long nine inning ball game of growth.

Excerpts from the Sunday San Jose Mercury News Story.

Silicon Valley on the rebound, report says

Silicon Valley is back to creating new jobs and delivering fatter paychecks, a new report shows.
The technology hub has ``rebooted,'' putting the post-crash doldrums in the past, according to the latest Silicon Valley Index, an annual economic assessment by Joint Venture: Silicon Valley Network, an alliance of business and community institutions.

With big tech firms recovering and start-ups flowering, the valley added 33,000 jobs in 2006 -- the first increase since 2001. The region's median household income also registered its first increase since the downturn, climbing 6.5 percent in 2006 to $76,300 -- a reversal of a 13 percent decline from 2001 to 2004.

...The theme of the latest assessment is strongly positive. In the January 2006 report, ``we saw the first evidence the downturn was behind us,'' with the economy stabilizing and hiring flat, said Russell Hancock, Joint Venture's president and chief executive.....

``This year we see quite clearly that Silicon Valley has done it again -- we've reinvented ourselves.'' He cited the growth in renewable energy ventures and so-called Web 2.0 start-ups, such as YouTube, that harness the Internet....

...Recent job growth, the economist said, reflects a new confidence. Before, ``productivity gains weren't showing up in job gains. That's not the case anymore.''...

..Another plus, he said, is a dramatic surge of venture funding into ``clean technologies'' that address pollution and the affect of greenhouse gases. The ``cleantech'' funding to valley firms soared from $141 million in 2005 to $516 million in 2006....

...``There's a lot of excitement about the green economy. I think it's real,'' Henton said. Venture funding, he said, is a leading indicator of economic performance that should stimulate later job growth....

By Scott Duke Harris
Mercury News

Businessweek Business Outlook - All is Well and No Inflation

2007-01-27T08:37:00.000-08:00

If you don't subscribe to Businessweek you should. It's revamped organizational format makes for an easy read. Though I don't pay a great deal of attention to the cover stories which to me are just shock value for media reach, I do regulary enjoy their columnists. The first section I turn to each Friday is the Business Outlook by James C. Cooper. He provides a concise analysis of current economic issues as well as relevant data and enlightening graphs. You can link to his post in the blog link section above if you are a Businessweek subsriber.

This week Mr. Cooper brings to our attention that it is possible to have strong economic growth with stoking the fires of inflation. This is largerly due to corporate cost control and productvity. Read below.

U.S. : A Stronger Economy? Yes. Higher Inflation? No
The rules have changed. Business is focused on cost control, not prices

Ask investors, especially those in the bond market, where they think inflation is headed in 2007, and they will most likely say down. They are probably right, but maybe not for the reasons they think. Many expect the economy to be weak enough to allow core inflation, which excludes prices for energy and food, to fall. The twist is that the economy is already proving stronger than anticipated, but despite that vigor, inflation may well decline anyway.

There is still a sense in the markets that a strong economy means higher inflation, and a weak economy means lower inflation. But over the past decade, the growth/inflation relationship has become a lot fuzzier, because the processes that influence inflation have changed drastically. A lot of market folks still haven't caught on, which can lead to misguided expectations about Federal Reserve policy and interest rates....

...In the past, labor costs have been a central factor pushing companies to lift prices, but this time the pressures may not be as intense. For example, although job markets were tightening last year at the same time energy costs were soaring, pricing power made only limited gains. Still, profit margins widened to record levels...

....The latest industry survey by the National Association for Business Economics shows margins continued to make steady improvement heading into 2007....

....One of the biggest problems in assessing the inflation outlook is knowing which measure of labor cost tells the true story. Right now, the most worrisome-looking gauges are the least credible..... Take the gains in average hourly pay for production workers.... that measure is not adjusted for the changing mix of jobs surveyed, which in recent years has favored higher-paying industries, such as business services and health care, thus lifting the average.

The Labor Dept.'s employment cost index, a more comprehensive measure of hourly wages, is not affected by changes in composition. It shows annual growth of only 2.5% in 2005 and 3.1% through the third quarter of 2006.

Another case is unit labor costs, or compensation adjusted for productivity. The Labor Dept. offers two versions: one for the nonfarm business sector and one for the nonfinancial corporate sector. The former shows unit costs through the third quarter up 2.9% from the year before, while the latter has risen only 0.5%. Many economists, even some at the Fed, believe the tamer-looking cost measures are closer to the truth.....

Excerpts from James C. Cooper Businessweek, Feb 5 , 2007

New Home Sales Better than Expected, Durable Goods Orders Strong

2007-01-26T08:59:00.000-08:00

So two bits of good economic news today. Durable Goods (those lasting more than three years) orders were up last month as well as new home sales. New home sales were also adjusted up for November and inventory in December fell below 6 months, a number that many consider a balanced market. Could we have had a bottom in November? Time will tell..........

From the WSJ

New Homes

"New-home sales finished 2006 on a positive note, rising a second straight month in December....In the home-sales report, sales of single-family homes increased by 4.8% to a seasonally adjusted annual rate of 1.120 million, the Commerce Department said Friday. November sales rose 7.4% to 1.069 million, revised from a previously estimated 3.4% advance to 1.047 million. Economists had expected a 1.2% increase to an annual rate of 1.060 million last month......

.....New-home inventories fell in December, a sign builders are getting supply under control. There were an estimated 537,000 homes for sale at the end of the month -- the lowest level since 522,000 in January 2006, the government data showed. That represented a 5.9 months' supply at the current sales rate. An estimated 542,000 homes were for sale at the end of November, a 6.1 months' inventory....

....The median price rose to $235,000 last month from $232,200 in November but was lower than the year-earlier level of $238,600.

Spending on Durable Goods Climbs

Orders for durable goods, big-ticket items such as cars and appliances meant to last three years or more, advanced 3.1% last month to a seasonally adjusted $221.87 billion, the Commerce Department said Friday. Durables rose 2.2% in November, revised from a previously estimated 1.6% increase. For all of 2006, durables rose at a not seasonally adjusted 7.0%, after rising 8.6% during 2005.

Orders for commercial planes increased 26.5% last month, while military aircraft orders rose 20.5%. Overall, transportation orders were up 4.8%, after rising 10.2% in November. However, a key barometer of business-equipment spending -- orders for nondefense capital goods excluding aircraft -- increased by 2.4%, after falling 1.0% in November."

By Jeff Bater - WSJ

Don't Ever Count Out the U.S. Consumer

2007-01-21T14:56:00.000-08:00

With the barrage of positive economic news this week, I've become even more optimistic about the U.S. economy in 2007......

"NEW YORK (Reuters) - U.S. consumer sentiment improved to a 3-year high in early January, propelled by falling gasoline prices and a favorable view of personal finances and economic growth, a survey showed on Friday.

The Reuters/University of Michigan Surveys of Consumers said its preliminary January reading on consumer sentiment index rose to 98.0 from 91.7 at the end of December.

This was the highest since 103.80 in January 2004 and well above the 92.5 median forecast of analysts polled by Reuters.

The surveys' gauge of current consumer conditions was 112.5 against a final December reading of 108.1, while its measure of consumer expectations was 88.7 versus 81.2.

Consumers, while generally upbeat, remain worried about inflation. The surveys' one-year inflation index edged up to 3.0 percent from 2.9 in late December, and its five-year index stood at 3.0 percent for a third straight month. "

Low Inflation, Low Unemployment, and Strong Housing Starts - Good News Comes in 3's Today

2007-01-18T07:13:00.000-08:00

There is a lot of data this morning regarding the health of the U.S. economy. Three of the major indicators were quite positive.

Excerpts from the Associated Press

Inflation is Tame

"WASHINGTON -- The Labor Department reported Thursday that consumer prices rose by 2.5 percent in 2006, the best showing since prices had increased by just 1.9 percent in 2003. The improvement came in spite of the fact that consumer prices jumped 0.5 percent in December, as gasoline prices staged a momentary rebound."

Jobs are Strong

In other economic news, the number of newly laid off workers filing claims for unemployment benefits fell to a seasonally adjusted 290,000 last week, the lowest level in 11 months and an indication that the labor market began the new year in good shape in spite of weakness in housing and auto manufacturing.

Housing Continues to Rebound

Meanwhile, the Commerce Department reported that construction of new homes rose by 4.5 percent in December to a seasonally adjusted annual rate of 1.642 million units, raising hopes that the worst of the housing slowdown may be coming to an end.

Venture-capital funding best in five years

2007-01-16T20:40:00.000-08:00

California receives about 47% of all U.S. venture capital. So this is strong indicator for future job growth in the state and confidence in the economy........

From the Sacramento Business Journal

Venture-capital fund raising in the United States reached its highest level in five years in 2006, despite a fourth-quarter slowdown.

In 2006, 200 venture-capital funds raised a total of almost $28.6 billion, compared with the 214 funds that raised $28 billion in 2005, according to data released Tuesday by Thomson Financial and the National Venture Capital Association.

The fourth quarter saw a considerable slowdown, though, with 37 venture-capital funds raising $2.83 billion, down from the $5.43 billion raised in 66 funds in the third quarter and the $13.8 billion raised by 66 funds in the second quarter.

The report didn't include breakdowns by regions or states.

NVCA President Mark Heesen said the decline in private-equity fund raising in the fourth quarter was expected. "On the venture side, we are coming to the end of the current fund-raising cycle as most firms are now turning their attention to investing the funds raised in the last three years," Heesen said.

Businessweek - Housing May Have Bottomed

2007-01-15T20:46:00.000-08:00

Housing: The Best Indicators Of A Rebound

"Has the home market hit bottom? That is the key question for the U.S. economy in 2007. According to some housing indicators, there is some light at the end of the tunnel for homebuilders, but that cautious optimism comes with caveats.

To get the most reliable signal that the housing recession is over, keep an eye on the average monthly supply of new homes for sale and the average mortgage rate each quarter. Analysis by Goldman Sachs U.S. economist Edward McKelvey of eight pieces of housing data widely used as leading indicators of the housing cycle showed those two series are better than quarterly averages of new and existing home sales, housing starts, mortgage applications, housing affordability, and homebuilder confidence. In housing market upturns, all eight indicators do a good job of forecasting market peaks by two to five quarters. However, "a contraction is swifter and more cathartic," says McKelvey. That places a premium on indicators that give a more consistent signal.

The monthly supply of homes--a ratio of new home inventories and home sales--has peaked one quarter before residential investment bottomed every time since 1961. Mortgage rates are nearly as consistent over that same period and have a similar lead time.The supply of new homes for sale in the fourth quarter should decline after a November reading of 6.3 months, from 6.7 in October and the recent peak of 7.2 months last July. Mortgage rates also fell in both the third and fourth quarters of 2006......"

By James Mehring - Businessweek

Cool Phone: Good for Nor Cal Economy

2007-01-09T20:16:00.000-08:00

Phone looks great, as was anticipated. This will also benefit the bay area and Sacramento economies where Apple has a large presence.......

For Story Link click here(Apple iphone )

Interesting Links

2007-01-06T17:59:00.000-08:00

Posted below are some interesting economic links worth perusing

Economic Links

(Greenspan says U.S. Economy Expanding)

(Healthcare for all Californians) ..................That will send jobs packing

(Oil Prices Going Down?)

Housing Market Bottomed?

(CBIA 2007 Housing Forecast)

(NAR 2007 Housing Forecast)

( UK Housing Forecast )

( Sacramento Housing Bottom )

More Jobs than expected, Goldilocks Lives

2007-01-06T07:08:00.000-08:00

A surprise leap in job gains
Employers add many more jobs than expected, unemployment rate remains unchanged.

NEW YORK (CNNMoney.com) -- Employers added more workers in December, as a government report Friday showed a labor market that was much stronger than forecasts.

The report showed a net gain of 167,000 jobs on U.S. payrolls in December, up from the 154,000 increase in November, which was also revised higher. Economists surveyed by Briefing.com had forecast only a 100,000 rise in payrolls in December.

The unemployment rate stayed at 4.5 percent, in line with economists' forecasts.
Wages also came in higher than expected, as the average hourly wage was up 8 cents, or 0.5 percent, to $17.04. Economists had forecast only a 0.3 percent increase in wages. The November wage gain was also revised higher......

The wage gain left the average hourly wage up 4.2 percent from a year earlier. That's well above the pace of inflation, which rose only 2 percent in the 12 months ended in November, according to a separate government reading.....

Forecasters Upbeat for 2007

2007-01-06T06:50:00.000-08:00

From the Wall Street Journal

Economy PoisedFor '07 Rebound, Forecasters Say

"The U.S. economy is poised to shake off the housing slump and regain momentum by the end of this year, and the credit goes to techies, bankers, chefs and shoppers, according to a Wall Street Journal survey of economists.

The panel of 60 economists who participated in the Journal's latest semiannual economic forecasting survey offered an optimistic outlook for 2007: The service sector should keep humming along as the recent weakness in housing and manufacturing abates and the Federal Reserve begins to reduce interest rates. That would allow the economy to expand at a rate fast enough to keep investors happy, but slow enough to keep inflation at bay.....

...On average, the economists predict that inflation-adjusted gross domestic product, a broad measure of economic activity, will grow at an annualized rate of 2.3% in the first half of 2007 and 2.8% in the second half. That's up from a sluggish 2% in the third quarter of 2006, but still far below the robust annual growth rates of 3.2% for 2005 and 4.1% for early 2006....

....The rapid expansion of technology companies such as Google Inc. and the huge bonuses lavished on New York investment bankers are just a couple of signs of the service sector's strength. Across the country, restaurants, hospitals, software makers and consulting firms are growing and hiring. All told, service businesses, which make up about 80% of the nation's economy, added 1.1 million jobs from May through November."

And Inflation is not a threat as I've said repeatedly....

"The economists surveyed expect year-to-year inflation to decline to 1.7% in May from 2.0% in November. As a result, they expect the Fed to shift its focus from fighting inflation to helping the economy grow, lowering short-term interest rates to 4.75% by the end of 2007 from the current 5.25%.

That's a big change from six months ago, when forecasters saw the Fed's battle with inflation as the greatest challenge facing the economy. "The Fed was hoping to slow the economy down enough to take the wind out of inflation without triggering a recession," says Nariman Behravesh, chief economist at consulting firm Global Insight in Waltham, Mass. "So far it looks like it has succeeded."

By Mark Whitehouse - WSJ

Salad and Garbage

2007-01-01T06:51:00.000-08:00

What is the difference between salad and garbage?...................the answer is timing. I found and interesting article from Fortune Magazine (Here) published in March of 2002 predicting that the housing bubble was about to burst. If anyone followed that advice they'd had left anywhere from 50-150% appreciation on the table pending their market. Below are some interesting excerpts to give us a little perspective for the New Year............................................

Fortune Magazine - March 28, 2002.

The Economy: Is Housing the Next Bubble?

...So is that it? Have we just had something like a 15-minute recession, and is it all smooth sailing from here? Not so fast, says a chorus of economists--plenty can still go wrong. Leaving aside such nightmare scenarios as further terrorist attacks, all-out war in the Middle East, or an oil embargo, the thing that spooks some economists the most is housing....

....In fact, housing didn't just hold its own during the slump. It zoomed. Activity has been so strong that sales of new and existing homes hit all-time records last year. Not exactly what you'd expect when around two million people were losing their jobs, is it? What's more, we've seen record growth in mortgage refinancing, and annual home-price increases between 6% and 8% nationally for three years in a row. "That's unsustainable by any measure,'' says David Levy, chairman of the Jerome Levy Forecasting Center. "Especially now that mortgage rates are on the rise." And that's the problem, according to Levy and others. The one sector we've relied on to keep the economy afloat is unlikely to hold up much longer. Worse still, housing could even turn out to be the next bubble--and we all know how that usually ends....

And one really bad prediction from permabear Mr. Shiller.......Mind you.......this is 2002...........

Certain regional markets may already be in trouble. According to data from Case Weiss Shiller, home prices in San Francisco have been dropping precipitously. In the first quarter of 2001 the average price of a single-family home there rose 4%, but by the end of the year had fallen 7%. "We're seeing a bubble bursting right now in San Francisco," says Robert Shiller, an economics professor at Yale University and partner at Case Weiss Shiller. "We've never seen such a sharp drop, and we're expecting it to fall even more." (Actually not quite Mr. Shiller - Santa Clara County median home prices rose from about $450k in early 2002 to currently approx $750k )

So despite short to medium term corrections in market, long term fundamental always eventually win out.

Were Housing's Troubles Just the Market Taking a Breather?

2006-12-28T10:36:00.000-08:00

It appears the U.S. housing market is stabilizing and may have already bottomed? Are we going to follow our UK bretheren and rebound after a 12-15 month breather (See previous months posts)? Time will tell...........

End of Housing SlumpSeems to Be Drawing Near

WASHINGTON -- Recent firmness in mortgage applications and an increase in new-home sales suggest the housing slump may be nearly over, limiting the risk of wider damage to the overall economy.....

....The four-week moving average for the MBA's purchase index, which offers a less-volatile picture of the trend, has risen 12% since August, while the four-week average for the group's refinancing index has soared more than 41% since July....

....A recent pickup in new-home sales also points to stabilizing demand. The Commerce Department said yesterday that new-home sales rose 3.4% in November to an annual rate of 1.05 million units. While that pace is down more than 15% from a year earlier, it has risen since July and has held fairly steady in recent months.....

..."The net of all the numbers we've gotten is that it looks like the housing market and home sales appear to have stabilized, at least temporarily, in the latter part of the year," said Thomas Lawler, a former economist for Fannie Mae who now runs a consulting firm in Vienna, Va.

...Last month, there were 545,000 new homes on the market, or the equivalent of a 6.3-month supply at current sales rates, according to the Commerce data, down from a recent high mark of a 7.2-month supply in July.....

Christopher Conkey - WSJ

Home on the Range

2006-12-28T10:23:00.000-08:00

AS I have been saying for awhile now, the housing market may have bottomed

From The Wall Street Journal....

WASHINGTON -- Demand for used homes rose a second straight month in November, a sign the housing slump might have hit bottom, while new data suggest growth on the manufacturing side of the economy....

...Existing-home sales increased by 0.6% to a 6.28 million annual rate, after rising 0.5% in October, the National Association of Realtors said. The back-to-back increases were the first since March and April 2005.

"As the housing market recovers from its correction, existing-home sales should be rising gradually during 2007 -- it looks like we may have reached a low point for the current cycle in September," NAR chief economist David Lereah said....

...The unexpected increase in resales followed a report this week of a pickup in November sales of new homes. Both sets of data showed home inventories declining.

....."We've entered a more sustainable period of home sales now, and we expect greater support for prices over time as inventory levels are eventually drawn down," Mr. Lereah said.....

.."Price drop is necessary to stir sales," Mr. Lereah said. "It is working. Sales are up. It appears we hit bottom."

Excerpts from Jeff Bater - WSJ Dec 28, 2006

Silicon Valley Job Market, Hot, Hot, Hot

2006-12-23T16:18:00.000-08:00

Valley Hiring Gains Steam

GROWTH IS BROAD, BEST IN 5 1/2 YEARS, OUTPACES STATE'S

Silicon Valley's job market, which had posted slow, steady improvement, heated up in November, registering the strongest growth in 5 1/2 years.

The strong gains showed up in many industries as cautious employers, who had been holding back on hiring despite an improving economy, finally felt comfortable enough to loosen their belts a notch.

Employers in Santa Clara and San Benito counties added 13,900 jobs over the past 12 months, bringing local employment to 894,800 positions, the state's Employment Development Department said Friday. The November-to-November increase of 1.6 percent was the strongest the valley has experienced since April 2001 and even outpaced California's November employment growth of 1.1 percent, said Gary Schlossberg, a senior economist at Wells Capital Management.

The jobs report came amid other signs of economic vigor. The Nasdaq is up 8.9 percent so far this year, tech company profits are holding up and recent local surveys of consumer and executive confidence have been relatively strong.

Employers added 1,900 jobs in November compared with the month before, an increase that was more than double the average October-to-November gain since 1990.

Spectrum Economics Chairman Richard Carlson, who has been studying the valley's job market since 1975, said this is the ``first time I've been able to smile in a long time looking at these numbers.''
He said if Silicon Valley's job growth simply matched that of the state, local employment would have increased by only 8,000 jobs over the past 12 months.

``We are finally growing faster than the state,'' Carlson said. ``This is the first time this has happened in a very long while. It used to happen all the time.''

The valley's job growth outshined the state's last month in part because, as the housing market slowed down nationwide, the valley didn't take the hit in construction jobs that other parts of the state suffered. That is in part because construction ``never really boomed the way it did in the rest of the state,'' Schlossberg said. ``So you haven't seen things begin to unravel quite as rapidly in Santa Clara'' County.

Experts were pleased to see most sectors bucking up compared with a year ago, ranging from computer systems design and related services adding 1,400 jobs, to leisure and hospitality creating 2,600 more positions, primarily in eating and drinking establishments.......

By Nicole C. Wong
Mercury News

Nothing to See Here...and.......Why this is a Good Thing

2006-12-20T18:08:00.000-08:00

Many economic pessimists took the opportunity to jump on the inflation band wagon based on the headline producer price index jumping 2% during the month of November. Trust me when I say there is nothing to see here, this is a blip due to some sort of data discrepencancy. Inflation is not a threat, the PPI is only up .9% on an annual basis, absolutely nothing to worry about.....

From the WSJ

"The Labor Department's producer-price index jumped 2%, its biggest advance since 1974, as prices for gasoline and light trucks soared during November. The core PPI, which strips out food and energy costs, advanced 1.3% in its biggest surge since 1980. The reading stands in contrast to last week's flat performance by the parallel consumer-price index; but as hair-raising as the numbers appear, economists said the data didn't scan. "Even if there once was a stable empirical relationship between wholesale and retail prices, that relationship is not reliable today," Stephen Stanley, chief economist at RBS Greenwich Capital, wrote in a note. "The gyrations in autos are the most extreme example, but by no means the only one." On an annual basis, wholesale inflation looked restrained. Core prices were higher by just 1.8%, and overall PPI was up just 0.9%."

And good news on housing. What most casual observers don't seem to understand is that housing starts down 30% year over year is great news. This is strictly a speculative inventory correction we are experiencing and the lower the starts the sooner we will reach equilibrium (we may be close), price stabilization, then gradual apprecation. So every time you see starts are down, rejoice, builders are bringing inventory in line with short term demand flux until the sheep get back in.

"In other economic reports today, new residential construction rebounded during November from a 13.7% plunge a month earlier, climbing 6.7% to a seasonally adjusted 1.588 million annual rate. A deeper look at the report showed that the housing sector remains far from turning around, however. Starts are now 29.4% lower than they were at the beginning of this year, according to Steven Wood of Insight Economics. Furthermore, building permits fell for the 10th month in a row, dropping by 3% to an annual rate of 1.506 million."

Time to Get Back into Real Estate?

2006-12-18T13:06:00.000-08:00

Housing Market Update from CNBC (Updated 12/19/06)

Homebuilders believe the worst of the housing slump has passed and that the market will rebound in the coming year, according to a December survey by the National Association of Homebuilders.

The NAHB/Wells Fargo Housing Market index fell one point to 32 but held above the 15-year low of 30 reached in September. Lower mortgage rates and cheaper new-home prices buoyed buyer demand, the group said.

“This was the third consecutive month in which builder expectations for sales over the upcoming six-month period have improved, and it’s a good sign of things to come in the new year,” said NAHB President David Pressley.

“Other recent indicators confirm that buying conditions have improved and that demand is stabilizing - including improvements in measures of housing affordability, strengthening consumer assessments of home buying conditions and an upswing in applications for mortgages to buy homes,” added NAHB Chief Economist Dave Seiders.

That could bode well for housing starts, which the Commerce Department releases Tuesday and which many hope will remain low as builders get rid of inventory.

CNBC Video Link Ara Hovnanian (Here)

CNBC Video Link From 12/18/06 (Here)

Inflation still not a threat

2006-12-18T12:35:00.000-08:00

I've repeatedly posted on this blog that inflation is a non issue in the U.S. economy. A lot of the headline numbers in the summer and early fall were lagging indicators and reflected some temporary higher energy fears. With the more recent inflation there is most definitely room for the Federal Reserve to cut rates in Q1-07 if they please. The non inflationary steady growth the economy is currently experiencing will be key for a continuance of the current expansion.

"WASHINGTON (AP) - Consumer inflation was a no-show in November as Americans enjoyed a third straight month of price relief led by big declines in energy costs. Meanwhile, industrial production staged a rebound led by rising output at auto factories.

The Labor Department reported yesterday that consumer prices were unchanged last month, even better than the small 0.2 percent analysts had been expecting. Prices had actually fallen by 0.5 percent in both September and October. The good news in all three months came from tumbling gasoline and other energy costs, which are retreating after a big run-up earlier in the year.....

....Core inflation, which excludes food and energy, was also unchanged in November, the best showing since June. That was likely to boost spirits at the Federal Reserve, which is working to keep inflation in check.

With one month left in 2006, overall inflation is rising at an annual rate of 2.2 percent, down from last year's 3.4 percent increase. Core inflation, excluding energy and food, has been rising at an annual rate of 2.6 percent this year, an acceleration from the 2.2 percent gain turned in last year.

The Fed's comfort zone for core inflation is between 1 percent and 2 percent. It has been working to slow the economy enough through higher borrowing costs to reduce core inflation.At their last meeting of the year on Tuesday, Fed policy makers opted to leave rates unchanged after engineering 17 consecutive rate hikes from June 2004 through June of this year.

Many economists believe the central bank is on the verge of achieving its hoped-for soft landing and will probably leave rates unchanged until May or June of next year, when the next move is expected to be a rate cut to counter unemployment, which is expected to rise in response to the slowing economy.

For November, overall energy costs were down 0.2 percent following even bigger declines of 7.2 percent in September and 7 percent in October. U.S. prices have retreated after global crude oil prices began falling this summer...."

Associated Press - Dec 16, 2006

Happy Holiday Retail Sales

2006-12-13T20:20:00.000-08:00

As noted in my earlier posts this month (Here) ( And Here), despite the doom and gloom this holiday season was shaping up to be, well, very merry. And now, it's beginning to feel a lot like Christmas........

Outlook for Holiday Shopping Improves With Big November Retail Gains

"WASHINGTON (AP) -- The holiday shopping season may not be so bad after all. Consumers came surging back into stores in November, revving retail sales at the fastest pace in four months. The 1 percent increase reported by the Commerce Department on Wednesday was far above the 0.1 percent rise that many analysts had expected.

In another encouraging sign, the government revised the October sales performance to show a 0.1 percent decline rather than the 0.4 percent drop originally reported.

The November rebound was surprising given anecdotal evidence from retailers that sales had tapered off following a strong weekend after Thanksgiving.

"No matter what the retailers may be saying, it appears that consumers have taken out their wallets so far this holiday season," said Joel Naroff, chief economist at Naroff Economic Advisors, a private consulting firm.

The November gains were widespread, led by a 4.6 percent surge at electronics and appliance stores. That increase is attributed in part to the introduction of sought-after video game consoles such as Sony's Playstation 3 and Nintendo's Wii.

"Once again, the reports of the death of the U.S. consumer have been greatly exaggerated. This holiday season might be decent after all," said Michael Gregory, an economist at BMO Capital Markets............"

By Martin Crutsinger, AP Economics Writer

Mortgage Defaults Less in California Than Rest of U.S

2006-12-13T20:08:00.000-08:00

So much for the wrath of defaults allegedly flooding California. Another urban legend. California borrowers are some of the most sound in the U.S. ............

"A rising number of Americans fell behind on mortgage payments during the third quarter of 2006, but California homeowners continued to fare better than most of the nation, the Mortgage Bankers Association reported Wednesday.

The MBA reported that 2.68 percent of California's 5.5 million mortgage holders were at least 30 days late on their house payments during July, August and September.
That compared to a national delinquency rate of 4.67 percent among 42.6 million home loan borrowers.

Just seven states - Washington, Oregon, Hawaii, Wyoming, Montana, North Dakota and South Dakota - had lower delinquency rates for all loans than California, according to the MBA's quarterly survey of delinquencies."

By Jim Wasserman - Sac Bee Staff Writer

Fed Stays Tight

2006-12-13T05:42:00.000-08:00

The Fed kept rates tight at 5.25% despite the bond market demanding otherwise. I still side with many economists that believe they will continue to talk tough but cut rates in the first half of next year. This would allow the soft landing scenario and stronger growth in 2007 and 2008 and a prolonged expansion. We Shall see.......

Fed Keeps Focus on InflationEven as 'Growth Has Slowed'

Markets Discount ChanceOf Interest-Rate BoostsDespite Bank's Position

"WASHINGTON -- The Federal Reserve signaled that while the economy looks a bit weaker than a month ago, its forecast and concerns about inflation are unchanged, and thus interest rates are still more likely to rise than fall.

The Fed yesterday left its short-term interest rate at 5.25%, where it has stood since late June. In the statement accompanying its decisions, the Fed downgraded its assessment of the housing market and acknowledged "mixed" signals on growth. But its forecast of moderate growth is unchanged. Inflation remains its principal focus, and it still says its choice is whether to raise rates -- not to lower them.

Bond yields declined and stocks retraced most of their early losses as investors interpreted the statement as a concession by the Fed to markets' gloomier forecast of growth and more sanguine outlook on inflation. (See related article.) That, however, might turn out to be an overreaction. Fed Chairman Ben Bernanke has emphasized that rate actions depend on where the Fed thinks the economy and inflation will be in the future, not where they are today. And that hasn't changed.

The Fed said that "growth has slowed... partly reflecting a substantial cooling of the housing market." Its last statement, in October, didn't include the word "substantial." "Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters," it said. Inflation remains "elevated," and though expected to moderate, "inflation risks remain." Whether rates rise again will depend on new data, it said, in words identical to those used in October....

....The Fed and the markets have starkly different views of the path of interest rates, with the former maintaining a bias to raise them and the latter anticipating cuts of half to three-quarters of a percentage point in the coming year. Yesterday's statement did little to close the divide. Indeed, investors raised the probability of rate cuts a bit......

....Laurence Meyer, vice chairman of Macroeconomic Advisers, says the divide between the markets and the Fed is likely to be resolved one month at a time. If the data continue to support the Fed's stance, the Fed's language will remain the same, and markets will adjust their expectations as each Fed meeting approaches.

Richard DeKaser, chief economist at National City Corp. in Cleveland, predicted the Fed would stay on hold through all of next year. He attributed recent weakness in manufacturing to firms reacting to a buildup of inventories. Businesses are "not hunkering down and playing defense," he said, adding that his bank continues to see healthy loan demand from businesses.

But economists at UBS AG predicted rates will be cut a full percentage point next year as growth remains subpar, unemployment rises, and inflation edges down. Mr. Bernanke will be "somewhat more sensitive to growth versus inflation risks," they argued.

By Greg Ip - WSJ

Should the Fed look at Cutting Rates?

2006-12-10T13:00:00.000-08:00

Has the Fed achieved the balance of growth and inflation allowing the U.S. economy to have a short term mid cycle slowdown? Or is it relying too much on lagging indicators, leaving rates too high ,and inverting the yield curve longer than necessary? This Wall Street Journal article compares the current economic cycle and Fed Policy with 2000-2001.

Fed Is HamperedBy Past in Effort To Sound Warning

"WASHINGTON -- Federal Reserve officials -- unlike bond investors -- think the economy is a lot sounder today than at the end of 2000 and in early 2001, when the Fed abruptly reversed course and began a string of interest-rate cuts.

Yet Fed Chairman Ben Bernanke's effort to convey the message that today's conditions are different is hampered by the Fed's lack of candor back in 2000.

Fed officials, who have universally voiced concerns about inflation, are expected to keep short-term interest rates steady at 5.25% at their policy meeting next Tuesday. But bond markets have priced in a small chance of a rate cut next week and three one-quarter percentage-point cuts over the next 12 months.

Markets anticipate those cuts in part because they see parallels to 2000. A technology-stock and investment bust began to unfold in the summer of that year, yet in November the Fed still said its principal concern was inflation, not economic growth. Seven weeks later, with stock prices tumbling and businesses canceling investment plans, the Fed made the first of 13 interest-rate cuts....

.....Fed officials thus appear content with a forecast of moderate growth over the next few quarters, then a rebound in mid-2007. "I don't think that the data we have seen are out of line" with that forecast, Federal Reserve Bank of Chicago President Michael Moskow said Monday on CNBC.com.....

Skeptics think that is bluster. "They're paid to worry about inflation, which means that until the slowdown is obvious and undeniable, they will stick to their forecasts," Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a report last week, citing the similarity to late 2000....

....Transcripts of the Fed's November 2000 meeting offer grist for the skeptics. Fed officials at the time saw ample reason to shift from their assessment that higher inflation represented a greater risk to the economy than did weaker growth, to a view that the two risks were balanced. "The balance of risks has shifted quite noticeably," then-Vice Chairman Roger Ferguson said..."

By GREG IP - WSJ