Where is the US economy headed?

Globally, securities markets have been notching successive record gains over the past several quarters, with "all time high" and "new 52 week high" headlines just about weekly fare ... without significant consolidations, corrections, or pullbacks. News, or more correctly rumors, of impending Chinese Government tightening of economic reins (including interest rate increases, tax increases along with the institution of capital gains taxes, and securities trading restrictions aimed at inhibiting rampant speculation, among other things), coupled with indications of slowing growth for the Chinese economy, spooked retail investors, triggering a selloff that dragged in the big boys, the institutional investors, who quite understandably moved to protect the gains they've notched over the past year; the share value of the Singapore index alone, for instance, more than doubled in the preceeding 12 months (up 130% Jan '06-Feb '07), recording on Monday an all-time high above its psychologically important 3000 Point benchmark. The profit taking and position protection hitting the Chinese indexes naturally had a ripple effect throughout the Asian and Pacific Rim markets, the European bourses followed suite, Greenspan spoke (with what he said misrepresented by the media - see below), the US markets took a hit along with the rest. Perhaps what is most surprising about all of this is that significant market corrections haven't happened more frequently. And perhaps least surprising will be a few days of general market weakness, followed by strong runups more than recouping this correction's losses over relatively near-term.

What Greenspan actually did say:

Quote:

... He said the U.S. economy has been expanding since 2001 and that there are signs the current economic cycle is coming to an end.

"When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said via satellite link to a business conference in Hong Kong. "For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle."

"While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown," he said.

Greenspan said that while it would be "very precarious" to try to forecast that far into the future, he could not rule out the possibility of a recession late this year ...

... Greenspan also said he has seen no economic spillover effects from the slowdown in the U.S. housing market.

"We are now well into the contraction period and so far we have not had any major, significant spillover effects on the American economy from the contraction in housing," he said ...

Source: AP via MSNBC

From a related article:

Quote:

Many economists aren't predicting a recession
Prevailing wisdom is that there is a one-in-five chance of it happening

timber's take: good time to do some bargain shopping - this correction is gonna turn around and markets will head back up a lot sooner than most folks think.

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curious. To the best of my knowledge a drop of 300 pts is supposed to trigger a stop on sales on the DOW but it didn't happen today.

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While our economy continues to expand at the cost of higher per person debt in the US, and wages losing ground to inflation, the only miracle I see in our economy is the projection of continued growth and/or stablization. Frankly, I'm not that worried about today's 416 point drop in the DOW, but I am worried about continued growth in our economy while consumer debt continues on its upward spiral.

http://img.photobucket.com/albums/v97/imposter222/debt-total-per-person.gif

I hope my tea leaves are wrong.

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dyslexia wrote:

curious. To the best of my knowledge a drop of 300 pts is supposed to trigger a stop on sales on the DOW but it didn't happen today.

The trigger is percentage of change (up or down), not dollar price.

With the Asian markets well into the trading day, some updates:

Quote:

Shanghai shares rebound after opening lower; China says no plans to tax capital gains

The Associated Press
Tuesday, February 27, 2007
SHANGHAI, China: Chinese regulators shifted into damage control, denying rumors of plans for a 20 percent capital gains tax on stock investments as share prices recovered modestly Wednesday following their worst plunge in a decade.

About an hour after trading began, the Shanghai Composite Index was up 1.2 percent to 2,804.28 after opening down 1.3 percent. On Tuesday, it tumbled 8.8 percent, its largest decline since Feb. 18, 1997.

Concerns about slowdowns in the Chinese and U.S. economies sparked Wall Street's worst drop since the Sept. 11, 2001, terror attacks. The Dow Jones industrial average lost 3.3 percent ...

... Tuesday's "sell-off does not reflect any fundamental change in the outlook for China's economy," Yiping Huang and other Citigroup economists said in a report released Wednesday. "A sharp contraction in excess liquidity that would reinforce damage in the stock market remains unlikely," it said.

China's big institutional investors are all state-controlled and would be unlikely to sell so heavily as to completely reverse gains that more than doubled share prices last year. With a key Communist Party congress due in the autumn, the authorities have a huge stake in keeping the markets on an even keel.

"They are acting now to nip a nascent bubble in the bud," says Stephen Green, senior economist at Standard Chartered Bank in Shanghai. The challenge is how to do that given generally bullish sentiment and the massive amount of funds available for investment.

"So they have to somehow calibrate the rhetoric and policy actions to keep a lid on this, while not triggering a collapse," Green says.

Among one option is a capital gains tax on stock investments. Rumors that such a tax may be enacted are thought to have one factor behind Tuesday's sell-off.

But the Shanghai Securities News ran a front-page report denying those rumors. The newspaper, run by the official Xinhua News Agency and often used to convey official announcements, cited unnamed spokesmen for the Ministry of Finance and State Administration of Taxation ...

Quote:

China shares stabilise after Tuesday's rout
Tue Feb 27, 2007 11:25 PM ET

SHANGHAI, Feb 28 (Reuters) - Chinese stocks stabilised on Wednesday as buying by local funds in financial blue chips pushed up the main Shanghai index slightly after a plunge of nearly 9 percent on Tuesday unsettled markets around the world.

Many analysts and traders said that while investors were nervous, Tuesday's tumble was probably not the start of a long-term bear market in Chinese stocks, since factors behind last year's bull run remained.

These factors include strong corporate earnings growth and billions of dollars waiting to be invested by newly created mutual funds, they noted ...

Quote:

HK shares trim losses as bargain hunting emerges
Tue Feb 27, 2007 10:10 PM ET

(Adds quotes, details)
By Rita Chang
HONG KONG, Feb 28 (Reuters) - Hong Kong stocks pared earlier losses in Wednesday morning trade after China's main stock index moved into positive territory and investors saw value in battered shares such as China Mobile.

"This is a good correction, a good opportunity to buy," said Tat Auyeung, fund manager at APEX Capital Management who manages a number of Asia ex-Japan funds worth about $500 million. "At this level, we're going to pick up some good stocks," Auyeung said, adding that China Mobile, mainland financial and energy plays were among his picks. "If the market comes off even further, we'll buy more." ...

Expect some European and US jitters - with consequent buying opportunities - to persist into Friday, but without broadspread significant downward pressure. By Monday, the bargain window likely will be closed.

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The market drop today was the worst in 3.5 years, but personally it doesn't bother me all that much as a long-term investor. The DOW dropped 416 points or 3.3%, and the Nasdaq dropped 97 points or 3.9%. This kind of one day shifts are usually overreaction to external readings of foreign markets and activities, and I believe those looking for bargains will bring the market back up to some "balanced" level in the coming days somewhere between the highs and lows of the day.
Our personal investments have done fairly well during the past several years, so that a 3.3% swing in one day doesn't have too much meaning to long term individual investors.
Some pundits earlier in the year predicted that the market will be fine for the rest of this year, with some weakening in 2008, and we know how accurate they are! LOL

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cicerone imposter wrote:

Some pundits earlier in the year predicted that the market will be fine for the rest of this year, with some weakening in 2008, and we know how accurate they are! LOL

Well, lets take a perspective look at that, c. i. - one day, nor even a week or so, does not a trend make. A year ago, Feb 27, '06, the DJI closed at $11,097.55. On February 27, '07, the close was $12,216.24. Off $412.66 from the open of $12,628.90, yes, but up $137.30 - in less than hour - from its intraday low of $12,078.85, which was set a bit after 3:00 pm. At 2:58 pm, the average was $12,346.02, at 3:01 pm, the day's bottom, $12,078.85 was reached - dropping $267.17, almost 2/3 of the day's total loss in 3 minutes - and by market close at 4:00 pm, the average had managed a solid triple-digit recovery from that bottom to close at $12,216.24 - a triple-digit pickup in less than an hour. Took a lickin', but kept on tickin', wouldn't you say?

Anyhow, back to Feb 27 '06; at market close, the average stood at $11,097.55, $1,118.96 lower than the Feb 27 '07 close, for a 1-Year gain of about 10.1% - spectacular? No, but not too shabby, either, particularly considering the pressures the economy has had to weather over that 1-year period.

The overall 52 week low for that period was $10623.20, set June 14 '07, against which the Feb 27 '07 close represents a nearly 15% gain, over a span of less than 9 months. BTW, 10 years ago, Feb 27 '97, the DJI close was $6,955.48, against which the Feb 27 '07 close represents pretty close to a 76% gain, or in average terms, 7.6% per year - a rate of increase about half that seen over the past 9 months.

Even taking into account some potential for continuation of the current correction, along with factoring in indicators of a "cooling" (or, as some prefer to view it, "stabilizing") economy, the trend doesn't look bad at all, and the trend is built on fundamentals - broad indicators which swing over months, not days, indicators which presently presently don't point to downturn.

A correction is not a cataclysm, its not even a decent trend indicator. Lets see how this plays out over the next 9 months before we score "The Pundits".

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In reality, the manufacturing sector has already been in recession for a quarter or so. It began its decline in late 04.
I think that the concern that the Fed will have to raise rates is out the window. NYT was betting that a cut in the rates will be probable sometime this year.

The S&P had only returned to its pre 2000 levels in January , when it hit 1250 (+/-).

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cicerone imposter wrote:

While our economy continues to expand at the cost of higher per person debt in the US, and wages losing ground to inflation, the only miracle I see in our economy is the projection of continued growth and/or stablization. Frankly, I'm not that worried about today's 416 point drop in the DOW, but I am worried about continued growth in our economy while consumer debt continues on its upward spiral.

I hope my tea leaves are wrong.

In all honesty, I share your concern, and any honest conservative must also share it. Old fashioned conservatism includes fiscal responsibility.

The problem I see is a disconnect between the two party's old philosophies, one being less government, less spending, and less taxes vs more government, more spending, and higher taxes. On top of this, the Democrats and Republicans cannot agree whether or not higher tax rates or lower tax rates will ultimately bring in more tax revenues, and which tact is more favorable to a healthy economy, which in turn influences the economy and tax revenues. The Republicans have a conflict of not going back to their core values of smaller government, as there seems to be a lack of confidence they can be elected if they don't submit to bribing the people as the Democrats do, so the debt continues to grow.

I don't see any way out of this, except for something akin to the "Contract with America" agenda pushed by Gingrich, wherein we can "grow" ourselves out of this hole. I think the changes have to be incremental, not too severe, wherein the shock could be counterproductive. I also think the people need to be awakened out of their attitude, especially government employees that expect raises all the time. I don't expect this to happen easily.

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Quote:

I don't see any way out of this, except for something akin to the "Contract with America" agenda pushed by Gingrich, wherein we can "grow" ourselves out of this hole.

We can't grow ourselves out of this debt. Compound interest ensures this.

Cycloptichorn

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i see that the shares for "encana" (one of canada's large energy companies are moving upward again :wink: ) .
they are up 1.12 % at noon - and not much below their 52-week high .
GO , ENCANA , GO !
hbg

EnCana Corp. ECA-T Last Trade:Feb 28, 2007 12:00 EST

Last: C$ 56.960 Net Change: C$ +0.630 % Change: + 1.12%
Open 56.010 Bid 56.960
High 57.200 Ask 56.980
Low 56.010 EPS 7.94
Volume 1,492,365 P/E 7.20
52-Week High 62.520 Indicated
Annual Div. 0.93
52-Week Low 44.960 Yield 1.64

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All sound energy companies are doing great in the market, hamburger. Proving oil and gas reserves constitute real solid economic value that is not going to be replaced anytime soon by any faddish movement.

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okie, Your concerns are unique; most Americans do not understand macroeconomics; unsustainable debt levels cannot be sustained in any healthy economy. The "I'm going to buy it today, and pay for it tomorrow" will eventually bite us in the rear end; it's only a matter of time.

Both the dems and repubs are at fault for not addressing this problem from decades ago, but if you see the economic trends between the two parties, you'll see that "everybody" benefited under democrats while only the wealthy gained during the republicans.

What surprises me most about these forums is the continued support by conservatives for their own party while they see the world destroyed around them. We now have over six million more Americans without health insurance; a fifteen percent increase during Bush's six years in office. Middle class income has lost buying power, and many more have fallen into poverty. These realities are a mystery for me when republicans continue to support their party that is doing them harm.

I'm not a liberal, but believe in universal health care. Other than that, I believe in small government, less government intrusions into our lives, and self-sufficiency. I don't believe in cutting taxes when our country is engaged in a war. Wars cost money, and we shouldn't mortgage our children and grandchildren for today's responsibilities.

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Cycloptichorn wrote:

Quote:
I don't see any way out of this, except for something akin to the "Contract with America" agenda pushed by Gingrich, wherein we can "grow" ourselves out of this hole.

We can't grow ourselves out of this debt. Compound interest ensures this.

Cycloptichorn

We won't ever grow ourselves completely out of debt, but I believe we can grow ourselves into a position of less comparative debt or more manageable debt as a ratio to our future GDP and overall wealth. Also, I think it is more troublesome to owe a greater portion of our debt to other countries, as compared to owing ourselves.

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okie wrote:

Cycloptichorn wrote:
Quote:
I don't see any way out of this, except for something akin to the "Contract with America" agenda pushed by Gingrich, wherein we can "grow" ourselves out of this hole.

We can't grow ourselves out of this debt. Compound interest ensures this.

Cycloptichorn

We won't ever grow ourselves completely out of debt, but I believe we can grow ourselves into a position of less comparative debt or more manageable debt as a ratio to our future GDP and overall wealth. Also, I think it is more troublesome to owe a greater portion of our debt to other countries, as compared to owing ourselves.

We can't grow our society at a rate greater than the interest on the debt adds more to the principle; we've moved past that point.

This is especially compounded by the fact that we have to make ever-increasing service payments on the debt in real-time. This means that a greater and greater percentage of our GDP goes to paying interest, which hurts our chances of growth. Now, if we don't actually pay the interest, but take out more loans to cover it - we get the situation we have today, but worse.

There is no scenario for reducing the level of debt which does not involve raised taxes. You should get ready for them, Okie, because they are coming.

Cycloptichorn

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okie, Not really. Other countries owning our debt makes it more secure, because they can't afford to flood the market with those bonds. If they try to rid themselves of those bonds, prices will drop, and the remaining bonds they hold will lose value. When that happens, the US currency also losses value, and the balance of trade benefits the US.

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cicerone imposter wrote:

What surprises me most about these forums is the continued support by conservatives for their own party while they see the world destroyed around them. We now have over six million more Americans without health insurance; a fifteen percent increase during Bush's six years in office. Middle class income has lost buying power, and many more have fallen into poverty. These realities are a mystery for me when republicans continue to support their party that is doing them harm.

I'm not a liberal, but believe in universal health care. Other than that, I believe in small government, less government intrusions into our lives, and self-sufficiency. I don't believe in cutting taxes when our country is engaged in a war. Wars cost money, and we shouldn't mortgage our children and grandchildren for today's responsibilities.

I think you have more issues swirling around here than how you frame it, cicerone. First of all, most conservatives do not support increased domestic spending by Bush. Example, education. The reason I support Bush is not because of his budgetary policies, but I simply see him as the lesser of two evils. I could not buy Gore because I saw him as almost a nut on many counts, and Kerry I saw as an arrogant and naive New England snob. Neither of those guys understand the realities of the world in terms of the threats, energy, and economics, in my opinion.

I understand wars cost money, but I see national defense as the number one priority here. I have always explained I teetered on whether Iraq was wise, but now that we are there, I think it unwise to pull the rug out from under Bush for political purposes. I do not think wars will break us as much as I think our own domestic social spending plays a bigger part in breaking our economic backs. To balance that, I don't believe we can afford any more wars right now. We have our hands full, but we need to band together and see this through in Iraq, rather than beating each other up over it. After all, Congress voted for the authorization of force, and they should have the moral gumption to admit it instead of trying to frame Bush making it all up on his own, which is a crock. Such Democratic antics has and is continuing to be a huge turnoff, as it is nothing more than pure political posturing and hypocrisy.

Also, economic trends and buying power have alot more influences than who happens to be president. Industries going abroad was a trend that started decades ago. We live in a world market, and the truth is we are living higher here than the market justifies in a world of competition now. The trends we see are a product of this free market making adjustments to us and our lifestyle. We need to see the bigger picture instead of blaming a president for it.

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Cycloptichorn wrote:

There is no scenario for reducing the level of debt which does not involve raised taxes. You should get ready for them, Okie, because they are coming.

Cycloptichorn

Just remember there is such a thing as the Laffer curve, cyclops. We may still be below the peak, however a raise in tax rates may not bring in nearly as much increased tax revenues as expected by Democrats, and there is a real danger of tax increases throwing our economy into a tailspin.

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okie wrote:

Cycloptichorn wrote:

There is no scenario for reducing the level of debt which does not involve raised taxes. You should get ready for them, Okie, because they are coming.

Cycloptichorn

Just remember there is such a thing as the Laffer curve, cyclops. We may still be below the peak, however a raise in tax rates may not bring in nearly as much increased tax revenues as expected by Democrats, and there is a real danger of tax increases throwing our economy into a tailspin.

Bull. We've been through this over and over. The 'laffer curve' is a theory which has nothing to do with the actuality of life at all. It's merely a cute number game.

Do you disagree with the statement that taxes must be raised in order to begin servicing the debt? If so, I'd like you to show how we can grow our economy faster than the debt service payments have been growing year-over-year.

Cycloptichorn

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As a portion of our economy or worth, the national debt doesn't appear to be radically worse now than ever.

http://en.wikipedia.org/wiki/Image:National_debt_as_a_%25_of_gdp.jpg

And when I said we could grow ourselves out of the hole or to a better postion, I advocate reducing spending growth vs increasing taxes.

The Laffer curve was debated extensively on another thread I started, and I think I won the debate, although the opponents would not admit it.

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okie, You have it all wrong; Americans want to pull the rug out from under Bush because our soldiers are getting killed and maimed for a goal long lost to too many justifications that have never come true. It's not about "politics." There has never been a "solution" for Bush's war except "more of the same." But for you, it's still "politics." You must learn to listen to the American People; something Bush fails to do.

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Where is the US economy headed?

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