Nov 30 2006
As Expected, Economy Decelerating into Recession
While consensus experts are getting surprised left and right by this week’s very weak numbers, we at Vigilant Investor were not, in the least.
Yesterday it was announced that in October the economy grew faster than forecast, at a 2.2%, but still at the slowest pace for the year. This was revised adjustment from the Commerce Department, who was expecting 1.6%, but upped the number based on increasing inventories. The slew of information for the week has been hardly glowing. U.S. New home sales fell 3.2%, their largest ever contraction. Meanwhile, durable goods orders declined by an abysmal 8.3%, the most since July 2000. This is leading many analysts to suggest that Fed rate cuts are all the more likely, especially if those numbers don’t improve soon. Adding insult to injury, the Chicago Purchasing Managers’ Index (PMI), a leading gauge of businesses activity, surprised consensus analysts dropping to 49.9 from 53.5 in October. Below 50 signals a recession. Some predict layoffs are in the future if the PMI slumps further.
Meanwhile, retailer sales in November were growing slower than expected as analysts dropped their forecast with Wal-Mart as the retailer for Middle-America again lowered its expectations and announced its worst monthly performance in 10 years.
The dollar showed continued weakness, slumping further — a long term trend we should all expect to continue, especially when measured against hard assets vs. other currencies that are often printed out of thin air to maintain trade parity against the U.S. dollar.
Proof is in hard asset prices, with Oil rising above $63 in today’s trading, while gold marched to a 12 week high trading above $650, up over $40 for November alone, and over 30% for the year.
Mainstream finance folks will continue to view us as Cassandra’s. We think the proof is in what is unfolding. Will this be the final unwinding of the Credit bubble, or will policy makers engineer another round of liquidity stimulation to ward off the inevitable for one more cycle? We don’t know, but act as if all is just fine at your own risk.
Remain Vigilant!
