Ed’s Daily Notes for February 28th   Leave a comment

Reuters (via Yahoo Finance): Big cut in U.S. fourth-quarter GDP growth looms

The U.S. government is set to slash its estimate of fourth-quarter growth as exports and restocking by businesses were less robust than previously thought, leaving the economy on a more familiar path of modest expansion.

Gross domestic product growth will probably be lowered to a 2.5 percent annual rate, according to a Reuters poll of economists. That would be down sharply from the 3.2 percent pace reported last month and the 4.1 percent logged in the third quarter.

“The revision to the GDP number will better reflect the underlying economic trend because the increases in inventories and exports that massively lifted growth in the second half of the year were simply not sustainable,” said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.

The Commerce Department will release its fresh estimate of fourth-quarter GDP at 8:30 a.m. (1330 GMT) on Friday.

I won’t try and predict what the new number will be, but I will say there is potential for a major market drop today. If the GDP number is revised significantly lower, say below 2%, the markets could have a very bad reaction to this, especially in light of the Federal Reserve’s tapering intention.

Bloomberg: Republicans Opposed to Yellen Flee Paul in Search of Rules

Republican lawmakers are seizing on a monetary-policy debate that’s older than the Federal Reserve itself as a means of hemming in the central bank as it enters its second century.

Led by House Financial Services Committee Chairman Jeb Hensarling of Texas, they’ve accused the Fed of following a haphazard, discretionary policy that investors have found hard to fathom and that has done little to help the economy, even as it recovers slowly from the worst crisis since the 1930s. As an alternative, they want Fed Chair Janet Yellen and her colleagues to adopt a rules-based approach that they say would be more understandable and reliable.

“We are into an improvisation phase where an incredible amount of discretionary power has been imparted upon the unelected and relatively unaccountable,” Hensarling said in an interview. “I don’t think that is good for promoting long-term economic growth.”

Read the entire article. I think the Republicans are correct here, mainly because of the economy’s recent booms and busts, which have been brought on by subjective Fed policy. They are guessing at what they should do, and they are too often wrong.

Bloomberg: U.S. Retail Chains See First Profit Decline Since Recession

With results in from 62 of 122 retail chains, the industry has posted its first profit quarterly drop since the economic contraction that ended in 2009, according to Retail Metrics Inc. Revenue also rose at the lowest rate since that year, the research firm found.

The results paint a grim picture of an industry hit hard by the sluggish job recovery and slow wage growth, which have turned U.S. consumers into a nation of penny pinchers. Earnings are expected to drop 6.1 percent on average during the holiday quarter, according to Retail Metrics data. The broader pool of Standard & Poor’s 500 Index companies, meanwhile, are estimated to see profit rise 8.5 percent.

This is an especially bad sign when you consider the added costs people will be paying for Obamacare this year. Unless the sector gets extremely undervalued, I would avoid retail.

Bloomberg: Gold Fix Study Shows Signs of Decade of Bank Manipulation

Speaking of things to avoid:

The London gold fix, the benchmark used by miners, jewelers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say.

Unusual trading patterns around 3 p.m. in London, when the so-called afternoon fix is set on a private conference call between five of the biggest gold dealers, are a sign of collusive behavior and should be investigated, New York University’s Stern School of Business Professor Rosa Abrantes-Metz and Albert Metz, a managing director at Moody’s Investors Service, wrote in a draft research paper.

“The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality,” they say in the report, which hasn’t yet been submitted for publication. “It is likely that co-operation between participants may be occurring.”

The paper is the first to raise the possibility that the five banks overseeing the century-old rate — Barclays Plc (BARC), Deutsche Bank AG (DBK), Bank of Nova Scotia, HSBC Holdings Plc (HSBA) and Societe Generale SA (GLE) — may have been actively working together to manipulate the benchmark. It also adds to pressure on the firms to overhaul the way the rate is calculated. Authorities around the world, already investigating the manipulation of benchmarks from interest rates to foreign exchange, are examining the $20 trillion gold market for signs of wrongdoing.

Gold price movements last year proved to me that it was rigged. When the price dropped significantly last Spring, and demand for gold went through the roof in Asia, the price should have bounced, but didn’t. That tells me the “supply-demand” equation isn’t working, which can only lead to one conclusion.

That said, I don’t expect any government investigations will reveal much, because governments have a vested interest in keeping gold prices down, in order to keep their currency values up. If currency values drop too far, especially against the gold price, people might realize that gold is more valuable than the worthless pieces of paper they are using.

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Posted February 28, 2014 by edmcgon in Economy, Federal Reserve, Market Analysis, News, Precious Metals

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