wmeubank@ocp.kcmo.com
NIKKO MARKET COMMENTS
Prepared by
The Nikko Securities Co. International, Inc.
First Greenspan, Then The PPI: What's Next
Shock Of The Old
Supply-siders, “New Paradigmers,” and other dreamers all, got a rude shock this past week. The attention- grabber was the Greenspan speech which unexpectedly unleashed a fury of pessimism about the economy. Greenspan testified before the Committee on the Budget, U.S. House of Representatives. Since the budget had been a bright spot in the U.S. economic scene most of us expected Greenspan to acknowledge that fact and to cheer for yet more progress. But that was not to be the case. Greenspan dwelt on the problems that he ahead in terms of rising social security liabilities. He stressed that the peace dividend had been fully cashed in and that the non-defense deficit as a ratio to GDP was not small. He went on to speak of the state of the U.S. economy: he noted how current growth was unsustainable. He warned of pressures in the labor market spilling out into inflation problems. He said, clearly, that the laws of supply and demand had not been repealed. He also took this (odd) opportunity to say bad things about the stock market. These comments were in stark contrast with those of U.S. Treasury Secretary Rubin, who spoke in New York two nights before, extolling the benefits of the “New Era.” On that same evening two old central banking hands, Paul Volcker and Karl Otto Poehl decried the notion of a new era. Volcker pointedly stated that he didn't see the risks as any different today than when he and Poehl were active central banking heads.
September PPI: Walk In The Park Interrupted By Mugger
The U.S. PPI report of Friday added the fear of God to the fear of Greenspan. Some PPI pressure had been expected. More came, quite uninvited. The CPI is expected to hold some nasty surprises of its own. Now these reports are probably not sufficient to get the Fed to hike rates in November. But if we get poor reports of inflation in November, too, that would probably be the final turn of the screw. Greenspan needs evidence of inflation before he can chance killing the growth goose that lays golden fiscal eggs. Congress needs growth too badly for Greenspan to play fast and loose with this need. Moreover, he has harped and warned about inflation for quite a time–a period during which inflation, in fact, fell. Greenspan needs real true inflation to justify a rate fee. Beyond that lie has plenty of reason for concerns. Money growth has ramped up. El Nino forces lurk in the background. The effect of the tight labor market is still feared. All Greenspan needs is evidence of this clear and present danger he already fears to justify a rate hike.
What Next?
If you liked the Greenspan budget testimony, just wait until he talk's before the Cato Institute in Washington D.C. this coming week. This meeting is scheduled to be on money and capital flows at 9:00 A.M. Tuesday October 14. The U.S. current account deficit remains large and with strong growth and a firm-to-rising dollar, the outlook would be for a wider deficit ahead. This could mean more disparaging remarks about Japan and its surplus, along the lines of Rubin's remarks on Friday. With foreign exchange reserves already brimming for several Pacific Rim countries (like China and Taiwan) it is hard to see where the demand for dollars will come from. The newly troubled Pac-Rim countries no longer peg to the dollar so their requirement to sop up dollars to support the peg is no longer there. Dollar reserves weren't very helpful to them in their crisis anyway. In Europe, the coming of EMU should reduce the overall demand for dollar reserves among the EMU-member countries, whoever they are. Meanwhile, any U.S. outward investment flow also must be covered by other inflows. At the same time the reduction in the U.S. fiscal deficit means there will be fewer U.S. treasury securities (actually slower growth in the outstanding stock of them) to buy. Where will the foreign flows come from? How can the dollar remain strong? These are fertile regions for the Fed chairman to explore in this speech. And none of these are good for the dollar or for U.S. bonds.
Outlook For The Next Week Ended October 17
Wednesday, retail sales (September) are projected to fall by 0.2%; flat excluding autos. Thursday, consumer prices (September) should rise by 0.4%; +0.3% in the core. The Philadelphia Purchasing Index (October) is expected to slip to 20.0%. Business inventories (August) should rise by 0.4%. Friday, housing starts (September) should rebound to 1.40 million units. Industrial production (September) is projected to rise by 0.2%. Capacity utilization should be steady at 83.9%. The mid-month University of Michigan Consumer Sentiment Index is expected to fall to 105.
Robert A. Brusca, Chief Economist
The Nikko Securities Co. International, Inc.
One World Financial Center, Tower A
200 Liberty Street, New York, New York
COMMODITY FUTURES FORECAST WEEKLY REPORT |
DEAN WITTER FUTURES COMMENTARY
THE LATEST COMMITMENT OF TRADERS ANALYSIS FOR CURRENCY CONTRACTS
MYERS ON FUTURES |
NIKKO MARKET COMMENTS
SCHAEFFER'S RESEARCH REVIEW
FED PRICES SLIDE BACK TO $65
MONEY VERSUS DEBT TWO AGGREGATES DIVERGED
STOCKMARKET CYCLES |
WEEKLY OUTLOOK
INTEREST RATE WATCH |
THE ALLENDALE ADVISORY REPORT
NIKKO MARKET COMMENTS |
THE REAPER
Copyright 1997, by Consensus Inc. All American and Pan American rights Reserved. editor@consensus-inc.com
Hosted by:
One Crossroads Place
610 West Maple Ave, Suite WWW
Independence, MO 64050
(816) 252-4080
sysop@kcmo.com