No one will confuse China with the United States, but Treasury Secretary John Snow is working on it.
Based on the secretary’s comments on his latest trip to the Middle Kingdom, China’s consumers are spending fast enough to buy TVs, cars, and other goodies. And that irks America’s Treasury chief. “Developing a stronger consumer credit system in China will be important in helping to facilitate the further development of the country,” Snow advised reporters last week, according to ChinaDaily.com. How magnanimous of him to say so. Indeed, he suggested that China’s “extraordinarily high” savings rate wasn’t being deployed as productively as it might be.
Monthly Archives: October 2005
A NEW INFLATION REPORT, SAME OLD DEBATE
It has a familiar ring to it: top-line inflation is surging as the core rate (less food and energy) remains eminently well behaved. As such, investors are still stuck with the recurring conundrum: which gauge of inflation holds the truth?
AMAZED & ASTONISHED, BUT NEVER SURPRISED
This morning’s Labor Department report on import and export prices is sure to re-energize the debate about whether rising energy prices are more than a short-term inflation threat. But while the dismal scientists will squabble about what awaits in the long run, the here and now offers clarity in abundance.
DATA MASSAGE
Statisticians like to say that if you torture the data long enough it’ll confess, which is a cute way of saying that you can prove almost anything if you play with the numbers. But data massaging can be a two-way street. If the creative mind can manipulate data, there’s also the possibility that the data is less than pure before the analyst starts to work on it.
BACK IN THE SADDLE AGAIN
There’s “no doubt” that the Fed will raise its benchmark short-term interest rate to 4.0% at its November 1 FOMC meeting from the current 3.75%, wrote Asha Bangalore, a Northern Trust economist, in a research note on Friday. Mr. Market concurs, based on the November 2005 Fed funds futures contract, which is priced in anticipation of 4.0%, as of today’s close. The momentum won’t stop there, the futures market also predicts. Drawing on the current price of the March 2006 contract, even higher rates await beyond the next FOMC meeting next month.
RESEARCH ROOM UPDATE: CURVACEOUS FINANCE
Gazing at the shape of the yield curve offers no promises on divining the future, but investors are nonetheless well advised to monitor the evolving relationship among the interest rates tied to the various Treasury maturities. On that score, the pressing question on this Columbus Day is whether a flattening yield curve will give way to an inverted one, a state of affairs in which short rates exceed long rates. Indeed, the 10-year Treasury, as we write, claims only an 18-basis-point premium over its two-year counterpart, according to Bloomberg. If and when the 10-year’s slim edge dips below that of the two-year’s yield, would such an unnatural state of pricing money signal trouble for the economy? In fact, each of the last six recessions have been preceded by such an inversion, advises a freshly minted primer on the curves of yield, courtesy of Arturo Estrella, an economist at the New York Federal Reserve Bank. “The Yield Curve as a Leading Indicator” reviews the obvious questions, and then some on the subject at hand. This tidy bit of research and summary, delivered in a user-friendly question-and-answer format, also offers a healthy bibliography for those inclined to dig deeper. No, the piece won’t extend absolute clarity about the morrow, but it sheds light on the relevance of yield curves as a forecasting tool. A fresh look at the topic couldn’t come at a more timely moment, and so CS today adds the paper to the Research Room.
DID SOMEONE SAY “BOO”?
The bond market as yet is unmoved by the current round of inflation talk, but the dollar and its arch nemesis, gold, are sensitive to the chatter.
BETWIXT & BETWEEN
If and when inflation strikes, history suggests the assualt’s anything but ambigious. No one debated if inflation was a bonafide menace in the 1970s, to cite the obvious example. But clarity of that sort, either confirming or denying inflation’s presence, may be a luxury in the 21st century. Instead, we can look forward to death by a thousand forecasts, and more than a little uncertainty from the numbers.
RETHINKING MONDAY
Talk about mixed messages.
Just 48 hours after the Institute for Supply Management reported that manufacturing activity in September was much stronger than expected, ISM today released its September survey for the services sector only to contradict Monday’s encouraging news. “ISM’s Non-Manufacturing Business Activity Index in September dropped to 53.3 from August’s 65, indicating a slower rate of growth of activity in September,”the press release advised. Although 53.3 still indicates growth, the index fell last month to its lowest reading since April 2003.
ONE MORE DIP?
Don’t let yesterday’s surprisingly upbeat manufacturing news for September fool you. The economy’s set to stumble, and perhaps fairly soon, triggering another descent in long-term interest rates, or so warns Pimco’s Bill Gross in his latest missive.