US relieved that inflation under control, but now fear of deflation.
From http://www.forbes.com/markets/2008/12/03/beige-book-economy-markets-bonds-cx_md_1203markets25.html
Market Scan: Beige Book Bleak
Maurna Desmond, 12.03.08, 04:05 PM EST
The U.S. economy is as bad as everyone thought, but there's a new worry: deflation.
There was nothing good about the Federal Reserve's Beige Book report on Wednesday. The report from the 12 regional Federal Reserve banks showed a faltering economy, an even the silver lining of low inflation was tarnished: fear of deflation is growing.
The report showed retails sales were generally down, especially cars. It also showed some prices had begun to fall as businesses compete for scarce revenue.
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“The only positive point is that inflation is under control," said Doug Roberts, chief investment strategist at channelcapitalresearch.com. "However, now the Fed is warning about deflation. The evidence pointing to a downward price spiral was "subdued," he said, though there were some decreases in retail and import prices. "But what your not seeing, as of yet, is an across-the-board lowering of prices" which would would indicate that a deflationary cycle had taken hold.
The report, which is an anecdotal compendium of economic conditions around the country, found consumer spending softened in nearly all districts, although tourism was slightly better than might have been expected. Mining and energy production saw a general slide and weakness in comercial real estate markets was also reported in most areas.
Investors may have been expecting bad news, but they scuttled to safety anyway. The two-year note yield was at 0.89%, down from 0.93% Tuesday, while the return on the 10-year note was flat from the day before at 2.70%. Equities were lower much of the day but rallied toward the close.
Guy LeBas, an analyst at Janney Montgomery Scott, said the bad news was in line with the Street's low expectations, but that the gloomy confirmation did spark some buying in the 10–30 year area of the Treasury market. "In terms of spreads, trading has been relatively quiet since the release," he said, "but we’re not seeing acutely negative sentiment from traders and investors, just more of the same chronic pessimism."
The sliding consumer activity is an outgrowth of the U.S. subprime mortgage crisis, which has limited the availability of credit and slowed economic growth around the world. Reined-in spending has put pressure on an already-weakened American economy, where other toxic issues such as rising unemployment, falling home prices and increasing foreclosures fester. The private sector lost 250,000 jobs during November, according to the ADP Employer Services report released Wednesday. (See "ADP Points Way Down On Payrolls Figures")
On Monday the National Bureau of Economic Research reported that the U.S. has been in a recession since December 2007. (See "Congratulations, It's A Recession")
From http://www.forbes.com/markets/2008/12/03/beige-book-economy-markets-bonds-cx_md_1203markets25.html
Market Scan: Beige Book Bleak
Maurna Desmond, 12.03.08, 04:05 PM EST
The U.S. economy is as bad as everyone thought, but there's a new worry: deflation.
There was nothing good about the Federal Reserve's Beige Book report on Wednesday. The report from the 12 regional Federal Reserve banks showed a faltering economy, an even the silver lining of low inflation was tarnished: fear of deflation is growing.
The report showed retails sales were generally down, especially cars. It also showed some prices had begun to fall as businesses compete for scarce revenue.
Article Controls
“The only positive point is that inflation is under control," said Doug Roberts, chief investment strategist at channelcapitalresearch.com. "However, now the Fed is warning about deflation. The evidence pointing to a downward price spiral was "subdued," he said, though there were some decreases in retail and import prices. "But what your not seeing, as of yet, is an across-the-board lowering of prices" which would would indicate that a deflationary cycle had taken hold.
The report, which is an anecdotal compendium of economic conditions around the country, found consumer spending softened in nearly all districts, although tourism was slightly better than might have been expected. Mining and energy production saw a general slide and weakness in comercial real estate markets was also reported in most areas.
Investors may have been expecting bad news, but they scuttled to safety anyway. The two-year note yield was at 0.89%, down from 0.93% Tuesday, while the return on the 10-year note was flat from the day before at 2.70%. Equities were lower much of the day but rallied toward the close.
Guy LeBas, an analyst at Janney Montgomery Scott, said the bad news was in line with the Street's low expectations, but that the gloomy confirmation did spark some buying in the 10–30 year area of the Treasury market. "In terms of spreads, trading has been relatively quiet since the release," he said, "but we’re not seeing acutely negative sentiment from traders and investors, just more of the same chronic pessimism."
The sliding consumer activity is an outgrowth of the U.S. subprime mortgage crisis, which has limited the availability of credit and slowed economic growth around the world. Reined-in spending has put pressure on an already-weakened American economy, where other toxic issues such as rising unemployment, falling home prices and increasing foreclosures fester. The private sector lost 250,000 jobs during November, according to the ADP Employer Services report released Wednesday. (See "ADP Points Way Down On Payrolls Figures")
On Monday the National Bureau of Economic Research reported that the U.S. has been in a recession since December 2007. (See "Congratulations, It's A Recession")
They did such a great job didn't they? Jacking up interest rates as late as July 2008. Even blind freddy reading braille was aware of the subprime crisis. The last interest rate rise should have been August 2007. Around July 2007 the warning signs were well and truely out on the internet and I would have thought our egg heads in the reserve bank would have been aware of the consequences. Warren Buffet was warning about derivatives way back in 2002.
