Saturday, October 28, 2006


GDP May Have Been Over-Stated

Bloomberg reports on the error that may rock markets on Monday. "An unexpected increase in auto production last quarter was a statistical fluke that will be reversed, making current U.S. economic growth even weaker, according to a former Commerce Department economist."

"Last quarter's annualized 26 percent increase in auto production shocked Joe Carson, now director of economic research at AllianceBernstein LP in New York. Without the gain, the economy would have grown at an annual rate of 0.9 percent, not the 1.6 percent the Commerce Department reported."

"The increase in output came despite cutbacks announced by General Motors Corp., Ford Motor Co. and others. A drop in the wholesale price of SUVs and light trucks as the automakers cleared leftover 2006 models made production look stronger than it actually was, said Carson. The economic fallout from the auto-industry cutbacks will instead come this quarter, he said."

"'Last quarter was weak even with the benefit of this mismatch and the fourth quarter will now also be weak because it's going the other way,' Carson said. 'Whatever output you have this quarter, which will probably be down, will be discounted by a likely rebound in prices.'"

"An increase in inventories overall suggests manufacturers may need to trim production this quarter. The economy will probably grow at an annual pace of 1 percent from October through December, down almost a full percentage point from his earlier estimate, according to Joseph LaVorgna, chief U.S. fixed income economist at Deutsche Bank Securities Inc. in New York."

"'A relatively large inventory build last quarter will need to be worked off and that will produce a negative hit to production, employment and income,' LaVorgna added."

If this turns out to be true, it will certainly drag on the US$ and boost gold, the yen and euro.

i've loved the housing bubble blog...thanks.

is that where u think this whole housing blowup is headed -- a weaker dollar leading to stronger gold ? Or, are you ultimately in the "deflation" camp and see that hurting PM prices as expressed in dollars. Or, are u in the "greater depression" camp where u think we have deflation AND a strong dollar.

curious to hear your views since it seems that this blog is an extension of the other in some ways.

It would certainly be unwelcome news this close to an election. The reporting on it by the MSM will be interesting.
The spread on Spot/December futures is $3.00.

Spot gold rises above $610 as resistance crumbles
Mon, Oct 30 2006, 15:11 GMT

LONDON, Oct 30 (Reuters) - Spot gold rose more than two percent to above $610 an ounce on Monday as resistance in the $607/$608 area gave way to a wave of buying, trader said.

Gold was quoted at $609/610 an ounce by 1505 GMT after an ealier peak of $610.50, the highest since September 8 and compared with $598.20/599.70 late in New York on Friday.

"The $607/$608 level was important, its broken through that," a trader said. "It's a very bullish signal."

I am generally in the deflation camp, but have watched US dollar fundamentals seriouly fall apart in the past two years. I am hegdging bets with currencies and some PM's.
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