M. Ramsey King Securities, Inc. Wednesday Dec. 1, 2004 – Issue 3048 "Independent View of the News"
Fortune Magazine, like many other pundits and fin media types, avers that the declining dollar is good for US exporters. As we stated in yesterday’s missive, this nonsense has been spewed for over three decades. The dollar was worth 357 yen at the end of 1971. The decline to the current Y102.77, let alone the drop to 80 in 1995, did little to rectify the US trade problem. We distinctly recall Lee Iacocca, then Ford’s CEO, screaming in the mid-‘80s, ‘Give me a 150 yen and I can compete with the Japanese automakers.’ Not too long after Lee’s bluster the dollar fell to 120. And how did that work out for Ford?
The three decade plus dollar decline versus Japan and other first world currencies has been accompanied by steady erosion in the US trade position. You’d think that three decades of data would be enough to dispel the conventional wisdom that the US, or any nation, can devaluate its way to prosperity.
When the dollar hits the alarm phase of a decline, which is usually about two-three years into a pronounced decline, there are always those that try to mitigate the extent of the dollar’s decline by comparing the dollar’s plight to some other country’s plight and declining currency. Sure, versus the peso, the dollar looks great. So what?
Prior to the open, more negative Wal-Mart news chilled the markets and thwarted the expected rally for month end. The China Business Weekly’s Jiang Jingjing reports, "Wal-Mart’s China inventory to hit US$18B this year - The world's largest retailer, Wal-Mart Stores Inc, says its inventory of stock produced in China is expected to hit US$18 billion this year, keeping the annual growth rate of over 20 per cent consistent over two years." http://www.chinadaily.com.cn/english/doc/2004-11/29/content_395728.htm
Yesterday Merrill said people are too optimistic about Intel’s prospects. Intel’s mid-quarter update is due after today’s close, so operators and investors figure Merrill knows something. We mentioned last week that DRAM prices had declined below their August low. Spot DRAM prices fell 16% in November. But as we keep harping, investors and operators have been eschewing fundamentals and adhering to technical/seasonal trading…PS – Several brokers and pundits promoted Intel before Merrill’s warning, saying they expect Intel to raise their estimates in the update. What are these people looking at?
All one needs to know about yesterday’s GDP figure is that according to US government economic statisticians, the US in Q3 had the lowest core inflation since the ‘60s. Core personal consumption expenditures are listed at +0.7%. This is so absurd, it defies comment. Yet many on The Street will not only swallow this pap, they will make decisions and invest clients’ money on this and similar bogus data.
Just last week, we saw a disturbing chart in Jim Bianco’s research that shows intermediate producer prices, ex-food and energy, at almost +8% y/y are near the all-time high annual ROC (+8.2%)……….
M. Ramsey King Securities, Inc. Friday Dec. 3, 2004
– Issue 3050 "Independent View of the News"
The Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of FNM, reports US home prices surged 12.97% y/y in Q3, the biggest increase since the 13.1% in Q3 of 1979. That 1979 reading was just months before the peak of the biggest inflation since the Civil War.
And isn’t it convenient that the BLS does NOT use housing prices in its CPI compilation? But if they did, Q3 CPI would be substantially higher because ‘Owners equivalent rent of primary residence’ accounts for 23.383% of CPI. By our rough calculation, substituting the reality of home prices for some bean counter’s guess of what a person could rent their home to themselves would add about 2.2% to Q3 CPI. And that is why John Kasich wants to use CPI instead of a real inflation measure to adjust Social Security benefits. The covert scamming of the public, particularly the elderly and those depended on the government for a check continues. http://www.bls.gov/news.release/cpi.t01.htm
And of course that means Q3 GDP is overstated by those 2.2 percentage points.
Is it duplicity or ignorance when economists and pundits believe CPI is valid without home prices but downplay record consumer debt levels by citing the huge increase in home equity to offset the debt?
Yesterday’s WSJ, on page 2, reports, "Health Spending Continues to Rise At a Fast Pace". According to the Center for studying Health System Change and the Employee Benefit Research Institute, US health care costs rose at an annualized 7.5% pace during the first half of 2004. Prescription drug prices increased 8.8%, a deceleration from the +9.6% rate of the second half of 2003. These healthcare and drug price increases would add about .3 to CPI.
Reuters: "Major U.S. retailers reported modest gains in November sales on Thursday, as discounting lured customers, but high energy prices and nagging concerns about a soggy job market kept buying in check. The results set a lackluster tone for the key holiday shopping season, which many Wall Street analysts anticipate will be solid, but not stellar this year."
US retailers reported, for the most part, disappointing November sales, even high-end stores.
The FT: "Eurozone manufacturing appeared close to contracting yesterday as the effects of the world economic slowdown and the stronger euro began to bite. Manufacturing output has already fallen in Germany and Italy, according to the November purchasing managers survey, compiled by NTC Research for Reuters. The eurozone output index fell by 3.6 points to 50.4 - the biggest drop since October 2001, the aftermath of the attacks on the US. The purchasing managers index, which acts as a forward indicator of production, fell from 52.4 in October to 50.4, the lowest since September 2003 and close to a point representing stagnation. "We are on the brink of an industrial recession in the eurozone," said Julian Callow, economist at Barclays Capital. Particularly alarming was the drop in the new orders index, which acts as a guide to trends. It fell from 52.6 in October to 49.8 in November, pointing to an actual decline in orders." http://news.ft.com/cms/s/2fc1039a-4407-11d9-af06-00000e2511c8.html
German unemployment rose to 10.8% in November, the highest rate since Dec. 1998. German companies, strapped by rising costs, are moving jobs to former Eastern Bloc countries.
AFP: "The eurozone economy got slapped with a wave of bad news Wednesday that highlighted a third-quarter slowdown, a decline in industrial activity and a stagnant job market. The reports came as sources close to the European Central Bank said the ECB had lowered its growth forecast for the eurozone this year to 1.8 percent from a previously projected 1.9 percent… In the third quarter, output in the 12 countries using the single European currency slowed to 0.3 percent from 0.5 percent in the second and 0.7 percent in the first, the European statistics institute Eurostat said." http://www.eubusiness.com/afp/041201174044.s6hg5q6q
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