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September 13, 2005
Write your own headline
Here are some actual ones...
US Aug producer prices up 0.6 pct pre-Katrina (Reuters)
Producer prices tame, trade gap shrinks (Reuters)
Doves Win a Round as PPI Arrives Light (TheStreet)
Hmmm... can't resist quoting from this one:
Solely on the basis of Tuesday's wholesale price inflation data, the way is cleared for the Federal Reserve to take a break from its rate-tightening campaign at its Sept. 20 meeting
Uh, yeah. Not sure I'd go that far. Even though I've been looking for a pause sometime in the next few months, I don't think it will be next week, nor do I think this data clears the way for it.
"It's another month of contained inflation at the wholesale level, and pipeline pressures are decelerating. There is so far little evidence of high energy prices getting down to core inflation," says Michael Gregory, fixed-income strategist at BMO Nesbit Burns.
...
"This is telling the bond market that first, the Fed has a little more wiggle room when dealing with core inflation. Second, it may not have to raise rates as aggressively in the long run; it may even be able to pause in the short-term," Gregory says.
If you are willing to stick with this article to page 2, however, you'll find...
As noted by Wachovia chief economist Jason Schenker, the report did not capture the industrial price shocks resulting from Katrina, including soaring gasoline and natural gas prices. The September report will see a predictably huge jump across the board in producer prices.
Furthermore, the report did show wholesale inflation was already gaining ground in August, if one considers that the year-over-year rate of producer price increase was 5.1%, the highest rate since December 1990. "This high level of price increases is likely to motivate the Fed to continue their measured rate of rate hikes," Schenker says.
So, the bottom line is that I'm not ready to call off the hounds yet. Neither is Reuters.
US rate futures confident of Sept Fed hike
These headlines use words like "shoot" and "spur". Not exactly comforting.
Gas costs spur Aug. wholesale inflation (BusinessWeek)
US producer prices shoot higher, trade (Financial Express, India)
Our neighbors to the north don't seem too concerned though,
U.S. producer inflation benign (Globe and Mail)
What does all this tell us? Not much. Despite the wide range of headlines, the stories pretty much agree (even TheStreet if you read on to page 2). We are left with confirmation of what we already knew. The energy component of the PPI has been jumping due to oil price increases. Pass-through, to this point at least, has been minimal. Anyone who read the Beige Book knew that. We also knew that this data was collected before Katrina. Next month is likely to be a similar, if not worse, story for energy prices. As for the pass-through, we'll have to wait and see. But we all know (you, me, and every member of the FOMC) that this data does not represent any potential pressures in the pipeline from Katrina.
We can (and we have) argued about the likely magnitude of those effects. They could be noticeable. We'll probably need two or three months of post-Katrina data to be able to get a sense of it. Thus, I would expect, ceteris paribus, that the Fed could hold the line, perhaps changing the language of the statement and give us another couple rate hikes before pausing. And then, pausing if and only if the post-Katrina data suggests that it would be wise.
December still seems like the preferable timing for a pause if there is to be one. But I am certainly open to re-evaluate that position as more data becomes available. For now though, this additional data point doesn't move me off of my expectation of a rate hike next Tuesday. I will be really surprised if they don't stay the course.
However, I will also be really surprised if the language of the statement does not reflect these discussions taking place in the media, among market analysts, and in the economics blogs. The last few statements have been remarkably similar--a cut and paste operation. But now, the market seems divided. If ever there was a time for clear language, now it that time. My guess is that they're working hard on that language even as we speak.
If they succeed, you'll know it by the lack of variation of the headlines.
Posted by William Polley at September 13, 2005 8:09 PM
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The economic 'news' is very much completely tangential to the real workings of the macroeconomy.
East Meets West - World Equities At the Top by Two Different - but Perfect -
Weekly Third Fractal Growth Paths
(Written 13 September 2005)
The weekly count for the third of three sequential major
growth fractals dating from 2003 for the Nikkei and Hong Kong indices
is 10/25/20. For the western US-Euro equities the weekly fractal
sequence of this final third fractal is 11/26-27/22. The two different
eastern and western equity indices weekly sequences conform to an
idealized x/2.5x/2x pattern and have reached their respective apogees
in very same week. While the Nikkei and some of the Euro-indices have
shown very characteristic exhaustion gaps within the past 3 trading
days matching the multi-yearly blow-off patterns of the high flying
NYSE and AMEX equities, the collective US Wilshire has not been able
to best its August 3, 2005 apex.
The underperformance of the premiere summation American Index, the
Wilshire 5000(TMWX), reflects the disproportionally negative
integrative burden on the US macroeconomy of its valuation fractal
determining elements - total quantitative personal, governmental, and
corporate debt, the latter of which has become much more expensive to
service under some behemoth's new junk bond status; unpayable private
pension funds soon to assumed by American taxpayers- of formerly
great, soon to be bankrupt, US corporations; expensive war cost which
have historically withered every prior major overextended world power,
record lack of US collective personal savings used as a base for
fractional lending, exhausted consumer discretionary spending running
up against near record energy costs; outsourced high paying jobs and
current wages not maintaining pace with inflation and debt servicing;
siren enticing and predatory unregulated lending practices leading to
asset consumption by a new group of extremely marginal buyers; rising
short term interest rates; the cresting of valuations of the US ATM -
equivalent asset, i.e., housing overvaluation; and recent massive
forward consumption of corporate profitless US automobiles akin to a
python eating its semiannual one time big pig bolus meal.
Relative to other leading world countries' above listed internal
economic parameters, the US and its protégée, the Wilshire, couldn't
exhaustion gap its way above its collective 3 August 2005 high. This
provides high probability information about the relative summation
strength of the US economy and its expected future asset valuation
activity in comparison to other world economic competitors.
From the Economic Fractalist archive on 28 July 2005:
Reverse Growth Fractal Top Patterns - Another Confirmational Indicator of
the Finale for the 147 year Second Great Fractal
'At major lower order valuations, top quantum units in individual equities
and commodities, many times complete classical inverse growth fractals. The
time units of the inverse top fractals can be in minutes, hours, or days
and usually are in a quantum sequence of either x/2.5x/2x or
x/2.5x/x,1.5x,1.6x,2.5x, the former being much more prevalent.'
A weekly reverse growth fractal of 15/37/30 weeks or x/2.5x/2x was identified
as a possibility on 28 July 2005. At the same time the possibility of a
x/2.5x/2.5x sequence was identified. This week, which ideally
completes a 15/37/37 week or ideal x/2.5x/2.5x inverse growth fractal
sequence, is in exact synchrony with the termination of a
11/26-27/ 22 of 22 averaged fractal weekly growth pattern.
Tuesday September 13 was day 26 of a 28 day ideal second fractal decay
pattern. Wednesday and Thursday, 14 and 15 September 2005 should
ideally be down days for the Wilshire ending the second decay fractal
of 28 days of a three sequence : 11/(28 of 28)/ 28 ideal daily decay fractal
pattern. An ideal next high for the third and final decay fractal would be on
day 104 of a 52/130/96(day 96 =Tuesday13 September) of a 104 day
sequence. The ideal final high of this nearly identical 1929 decay fractal
pattern would be on day 7 of a 11/28/(7 of 28 )day sequence. If the fractal
pattern identification is correct the last 28 days representing the third decay
fractal will be the major primary crash sequence equivalent to the final third
fractal of 27 days seen in the fall and Fall of 1929.
There are still lower probability possible decay fractal pathways
using a base with a range of 11-14 days. The extreme length would be
represented by a 14/35/22-35(1.6-2.5x the base)
decay fractal sequence with a maximum of a 14/35/35 day sequence. All
of bases include the 3 August 2005 Wilshire top. The second highest
probability daily base to the current high probability 11 day base
would be 13 days for a 13/33/21-33 daily decay sequence.
If the AMEX and NYSE characteristic exhaustion gap highs on
Friday 9 September remain unexceeded, a very ideal daily sequence
of 52/123/100 which when averaging, integrating, and reconfiguring the first
two fractal sequences of 52 and 123 days becomes 50 and 125 completing
an ideal 50/125/100 daily with a perfect x/2.5x/2x averaged configuration.
Gary Lammert http://www.economicfractalist.com/
Posted by: gary lammert at September 14, 2005 5:46 PM