Fellow
Shortrunners,
Despite continued signs of economic weakness in the States, most economists don't expect the FOMC to change interest rates when they meet this Tuesday. Attempting to predict Fed policy has its merits. Attempting to chastise the Fed for failing to act to control a stock market bubble is appalling. Nonetheless, this is what a recent release from the Financial Markets Center, a watchdog agency for the Federal Reserve, suggested earlier this week. By contrasting statements made by Greenspan and the FOMC as early as 1996 in which they worried about a potential asset bubble with current statements in which the Chairman suggested that predicting an asset bubble as near impossible, the release hopes to expose an apparent hypocrisy.
Unfortunately for the FMC and the Fed's critics, no such hypocrisy exists. The Fed's primary goals of economic growth and stable prices do not include stock market intervention. To say that the Fed should act to control the stock market, if it recognized an asset bubble, is akin to suggesting that the markets themselves should be regulated. Unfortunately, as a skeptic I have no more faith in the Fed's ability to value our country's businesses any more that I do an analyst for Merrill Lynch. To suggest that any one participant, such as the Fed, should be able to recognize an imbalance is folly. It is the interaction of the market as a whole, not of any individual or group that should determine prices. The term market itself implies a conglomeration of buyers and sellers, who if willing to purchase or sell given assets at a set price have thus valued the asset at that price. Financial markets, as they exist in the United States are some of the closest examples of perfectly free markets, where rapid price movements and information diffusion allow a system of self regulation. It's also a system that, even if prone to volatility, is significantly more efficient than any prior means of financial valuation. It is the market's task to value corporations not the Fed's.
Daniel Hicks
Economic Releases
The data section
provides charts and data for the most important economic indicators.
Business Inventories:
0.4%
Release Date: 9/16
- The commerce department reported Monday that business inventories were 0.4% higher in July. The increase was accompanied by a rise in business sales of 1.2%. Rising investment activity by Firms, according to recent speeches by Chairman Greenspan, is essential to revitalizing the economy. Investment activity has the power to drive productivity growth and is thus essential to long-term economic growth.
Industrial Production:
-0.2%
Release Date: 9/17
- During August, industrial production, a measure of the raw output of factories, mines and utilities, declined 0.2%. According to the Federal Reserve, capacity utilization, released alongside industrial production, declined to 76% from July's 76.2%. Low levels of capacity utilization will help to constrain supply side price pressure and inflationary pressure despite the current environment of low interest rates.
Housing Starts:
1.609 million
Release Date: 9/19
- Housing starts fell 2.2% in August, the Commerce Board reported Friday. It was the second straight month that the decline in housing start activity had eclipsed 2%. The fall in housing starts is bad news for the economy which had been rely on the housing market to prop up overall growth figures.
Jobless Claims: 424,000
Release Date: 9/19
- Jobless claims are clearly trending up, after a revision to the previous weeks figure raised its estimate to 433,000. Initial jobless claims have remained above the 400,000 figure now for the past month, a strong sign that the economy is slowing. Some economists have remained optimistic, claiming that unemployment, typically a lagging indicator, should rise before it recovers as it trails any overall recovery.
Treasury Budget: -$54.7
Billion
Release Date: 9/20
- The US Treasury reported a deficit approaching $55 billion during August. While down significantly from August 2001's deficit of closer to $100 billion, last year's figures were skewed by tax refund checks. Fiscal year 2002 is set to run a hefty deficit, the first government deficit in 5 years. The cumulative deficit for 2002 is likely to run somewhere around $150 billion.
ECRI Weekly Leading Index: 119.4
Release Date: 9/20
- The ECRI WLI Slipped for the second week, bringing its growth rate to a meager 0.5%. Strong deceleration in the index is not a sign of a double-dip ECRI forecasters say, but is suggestive of continued economic weakness going out.
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