Back on September 22, we asked: Whither Goldilocks? 

Yesterday, the WSJ’s Marketbeat looked at a similar question, and concluded Goldilocks Gets Eaten:

"Just eight days ago, the 10-year
Treasury note’s yield closed at 4.83%, and investors were thinking that
the economic slowing would be brief, that the Federal Reserve would
remain on hold, and that the much-heralded Goldilocks scenario might
come to fruition, as inflation wouldn’t get out of control.

[aeeee]

How things change. Since that day, a barrage of data has upended those expectations. Two reports on home sales suggested conditions in real estate are continuing to worsen. Another report suggested construction spending will decline next year for the first time since 1991. We saw a worse-than-expected GDP report that may end up revised downward, and today’s lackluster reports
on Chicago-area manufacturing conditions and consumer confidence have
market participants now thinking harder about a sharper slowing over
the next couple of quarters.

Consumer confidence fell surprisingly in October, the
Conference Board reported, and some economists pointed out that falling
gasoline prices and strong stock-market gains should have had a
more-positive impact. But David Ader, fixed-income strategist at RBS
Greenwich Capital, says the housing woes are an overriding factor in
consumer attitudes. "There’s a psychological element to the wealth
effect…most Americans have the bulk of their wealth and liquidity tied
up in their homes," he says.

The yield on the 10-year Treasury was lately at 4.63%,
the lowest since the beginning of October, and the federal-funds
futures on the Chicago Board of Trade now put 84% odds on a rate cut by
May, compared with 11% just after the Fed’s Oct. 25 meeting. "It’s
prodded [the market] further into saying a slowdown of some magnitude
is coming," says Mr. Ader. "People are thinking about a harder landing
than they thought about two weeks ago."

Good stuff . . .

>

Source:
Goldilocks Gets Eaten
David A. Gaffen
WSJ MarketBeat Tuesday, October 31, 2006  11:40 am   
http://online.wsj.com/article/SB116230036095308849.html

Category: Economy, Markets, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

48 Responses to “Goldilocks Gets Eaten”

  1. Eclectic says:

    “The Ogre’s Last Chew”

    The party’s near over;
    -Just one last to-do.
    It’s time for the Ogre
    -To have his last chew.

    But, cash in your pocket
    -And calls– they’re so light!
    It’s really the reason
    -You’ll not have a fright.

    So, heed old Eclectic,
    -And give him his due,
    Or the Ogre’s last morsel;
    -Well, it just might be you.

  2. OkieLawyer says:

    The Wall Street Journal is not known for being bearish, right?

    If the WSJ is now turning bearish, we’re probably in for a bumpy ride.

  3. David says:

    The ‘soft landing’ for the US economy is becoming less and less plausible. The US economy is in for a ‘hard landing’ as a recession is coming. Roubini is right!

  4. Ricardo says:

    Can someone tell the bullish crowd on Wall street about this? Oh, lemme guess, they already know, but in their perverted minds have already put a positive ‘spin’ on it! Right! Things can ONLY go up! I wish this market broke in half already. We’re at the top of record profits, how can it get any better?

  5. Eclectic says:

    ADP just announced 128K jobs; So, we have a setup for Roubini to hit one out of the park Friday.

    Let me guess… Kudlow takes the ‘over.’

    Leisman takes the under?

    Kernen?… Insana?

    Our lovable in-house curmugeon takes the under I suppose.

    Well, for me… that’s why they call me Eclectic. But, either under or over we’re still seeing a ratcheting down in wages and benefits and that will continue for some time yet.

  6. mark says:

    But the market keeps going higher ……

  7. Steve C says:

    Bullish sentiment readings from investment newsletter writers are at a 5 yr high. Earnings for the S&P 500 are at the top of the long-term 6% growth channel that connects prior earnings peaks going back decades.

    Sure, the mkt may move a few % higher in the near future, but historically we are at the riskiest point and time to be in the stock market, IMO. The problem is that the mkt may slowly inch ahead from here, but when the end comes the downside momentum becomes violent and it’s psychologically difficult to get out.

    Sorry to be so pessimistic.

  8. david foster says:

    Given these numbers, Barry, are you still concerned about inflation being understated, or do you think inflationary trends are being suppressed by the slowdown?

  9. Inflation was VERY understated;

    It is probably still being understated, but much less so –

    Once any real contraction starts, inflation will drop precipitously.

  10. Francois says:

    “But the market keeps going higher ……”

    Yes…but what about the risks?
    What about market’s behavior during this rise?
    Is it broad-based with ample participation and outstanding volume?

    Hmmm! Somehow, I’m not so sure.

  11. Alex Khenkin says:

    This “…the market keeps going higher ……” thing reminds me of a farm turkey who keeps getting fatter and happier by the day. In November. Oblivious of a certain fine old American tradition.
    Small Investor Chronicles

  12. scorpio says:

    5 trading days til Christmas, Nov 7. will the market get everything it wants, or a lump of coal? aside from the obvious Fed manipulation of futures, further question is how easy is it to manipulate elections in this country now? answer unfortunately, pretty easy. those looking for Democratic gains, like the American public, may be disappointed. polls today probly no more predictive than Kerry’s 3-pt margin of victory based on much more reliable EXIT POLLS in 04. so that’s your blow-off scenario, Rove and the machines either cut the Dems gains or keep both majorities.

  13. KP says:

    The soft landing may have had a chance before the “fast money” crowd started waving the pocket watch in front of the greedy speculators with short memories. The market has been storing energy like a spring for sometime, which is great when legitimately trying to break through to new highs, but when the fundamentals(you know the very things that bulls tend to ignore) are Jello, you are balancing an elephant on a unicycle….it doesn’t take much of a bump….

  14. jkw says:

    Actually, if there is much evidence the elections are manipulated, even if it is insufficient to prove anything in a legal sense, the stock market will probably fall. The only reason we didn’t get riots in 2004 is that we have such a long history of democracy working that almost nobody is willing to believe the government is actually manipulating the elections. But more people are believing it every day, and if too many strange things happen this year it could lead to serious problems. We very much need this election to not have any appearances of manipulation (regardless of whether or not it is manipulated).

    I’m not sure what the market will do based on who wins if everything looks like it was done correctly. You can argue for anything to happen depending on what you believe.

  15. brion says:

    The colonists were a small merry band of tea-dumpers in comparison to the demographic behemoth America has become. Rousing THIS populace takes THAT much more effort…. If all (revolutionary) politics is local then the country is probably too damn diffuse anymore.
    It has been a “dream” electorate for Republican misrule.

  16. guambat stew says:

    “The market keeps going higher…”
    See ” That’s a mighty mean reversion you’re packin’ there Mister”
    http://guambatstew.blogspot.com/2006/11/
    thats-mighty-mean-reversion-youre.html

  17. MarkM says:

    Who cares? The 10:30am Buy Program run by (insert your favorite here) is still workin’! Buy this thing up!

    Public Service Announcement: “Mark”, keeper of the faith regarding “The Sweater” will heretofore be known as “MarkM”, as he is or may be on other sites as well. Not as drastic as “B’” s change. No inscrutable series of numbers following my name. Nothing clever like some of the monikers here. Just “MarkM”. Too many damn “Mark’s” posting here. I can’t keep straight what I’ve said and what I hadn’t (not that I could the other way either.)

  18. advsys says:

    Goldilocks is strictly a state of mind. It does not have to be based on real data.

    There is currently a disconnect between real data and mindset. One day the two will get together again and that could end up being an ugly conversation.

  19. 11-1-2006 – Items of Interest to Family CFOs

    Saving and Budgeting Money Magazine gives us 25 Rules To Grow Rich By. These cover the gamut — from what remodeling will give you the biggest return when you sell your house, to how much company stock you should hold,

  20. BDG123 says:

    Hey,
    I have a porno flick by that name. I’m getting aroused just thinking about it. lol.

  21. winjr says:

    “Earnings for the S&P 500 are at the top of the long-term 6% growth channel that connects prior earnings peaks going back decades.”

    You must read John Hussman. His argument in this regard is very compelling.

  22. Robert Cote says:

    Mr. R,
    Do you have an alternative inflation measure you follow or are more comfortable with?

  23. dry fly says:

    I second R Cote’s request. If not the official inflation rate then what?

  24. Mike_in_Fl says:

    Speaking of this comment:

    Goldilocks is strictly a state of mind. It does not have to be based on real data

    I’m definitely marveling at the divergence between home building shares and the Mortgage Bankers Association’s weekly purchase application index. The shares have been heading steadily higher from the July “bottom,” while the MBA purchase index has been making a series of lower highs (despite falling mortgage rates) and just this past week, set a marginal new low for the cycle.

    Talk about denial! Either purchases are going to surge soon, and that’s what these stocks are pricing in (perhaps next week or the week thereafter when the very recent bond rally shows up in mortgage rates?) OR the stocks have things very, very wrong. I’m in the second camp, but I suppose only time will tell.

    http://interestrateroundup.blogspot.com/

  25. Q-Ball says:

    Barry,

    You have posted about inflation and recession. Usually these two are inversly related except in stagflation.

    So what is your view of what is coming:

    Recession and mild inflation with rates coming down.
    No Recession and inflation with rates going up.
    Recession and inflation with rates going ?????

    Just curious.

  26. Q-Ball says:

    Sorry Barry,

    I missed your comment above (I did look for it but it was too quick a scan I guess).

    It seems you see Recession with decreasing inflation probably leading to an eventual lowering of rates as recession hits.

  27. bob says:

    About market manipulations.

    I don’t think there is anything related to elections. Things that I see are much bigger than elections. The M3 curve tells that feds are printing money like crazy from early September.

    The apparent involvement is so big that they would never do that for political reasons, nobody will let them to do that in a such large scale. What I see from M3 is that Feds are scared like hell from the incoming data and are making extraordinary efforts to achieve the “soft landing”.

    The stock market run you see the last 2 months is just a side-effect of so much money poured out from every hole. The economy fundamentals are deteriorating at such a violent speed that even this flood of money is not helping much.

    By “manupulist” logic we must see market crash right after elections. I don’t think we will see much difference. By my theory Feds will continue to print money after elections at the same speed. I don’t think there is anything else they can do now. Put me in Bernanke seat – I will print money very, very fast, too.

  28. Vegaman says:

    I agree with Bob, there is a Global M3 pump on at the moment and there is no real reason to stop until the Fed and friends become uncomfortable with the side effects of all this liquidity (rising stock market, low measures of risk like credit spreads and volatility, and the value of $). All the central banks sound Hawkish but their actions signal the opposite, this feels like Q4 1999 to me.

  29. tj & the bear says:

    “There’s a psychological element to the wealth effect…most Americans have the bulk of their wealth and liquidity tied up in their homes,”

    Soon to be revised to…

    “There’s a psychological element to the poverty effect…most Americans have the bulk of their debt tied up in their homes,”

  30. tj & the bear says:

    “There’s a psychological element to the wealth effect…most Americans have the bulk of their wealth and liquidity tied up in their homes,”

    Soon to be revised to…

    “There’s a psychological element to the poverty effect…most Americans have the bulk of their debt tied up in their homes,”

  31. tj & the bear says:

    “There’s a psychological element to the wealth effect…most Americans have the bulk of their wealth and liquidity tied up in their homes,”

    Soon to be revised to…

    “There’s a psychological element to the poverty effect…most Americans have the bulk of their debt tied up in their homes,”

  32. tj & the bear says:

    “There’s a psychological element to the wealth effect…most Americans have the bulk of their wealth and liquidity tied up in their homes,”

    Soon to be revised to…

    “There’s a psychological element to the poverty effect…most Americans have the bulk of their debt tied up in their homes,”

  33. tj & the bear says:

    “There’s a psychological element to the wealth effect…most Americans have the bulk of their wealth and liquidity tied up in their homes,”

    Soon to be revised to…

    “There’s a psychological element to the poverty effect…most Americans have the bulk of their debt tied up in their homes,”

  34. tj & the bear says:

    “There’s a psychological element to the wealth effect…most Americans have the bulk of their wealth and liquidity tied up in their homes,”

    Soon to be revised to…

    “There’s a psychological element to the poverty effect…most Americans have the bulk of their debt tied up in their homes,”

  35. BDG123 says:

    The Fed is NOT PRINTING MONEY. I’m rather bored with this conspiracy theory stuff perpetrated by fringe thinking. Look, M3 can mean many things. And, it can be worthless. While I wish they still printed it, there is a sound argument that it has little value today as a reporting mechanism with the flow of money across a global borderless society. There may be a fair amount of credit creation going on but it isn’t because the Fed is printing money. At least not yet.

    The Fed, contrary to popular opinion, isn’t run by a bunch of derelict rejects.

  36. eco-none says:

    You might have seen this…

    Monday view: Paulson re-activates secretive support team to prevent markets meltdown
    Judging by their body language, the US authorities believe the roaring bull market this autumn is just a suckers’ rally before the inevitable storm hits.

    Hank Paulson, the market-wise Treasury Secretary who built a $700m fortune at Goldman Sachs, is re-activating the ‘plunge protection team’ (PPT), a shadowy body with powers to support stock index, currency, and credit futures in a crash.

    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/10/30/ccview30.xml

    That should give us a soft landing. No?

  37. Robert Cote says:

    BDG123, the sad part is that the Fed isn’t physically printing money. They couldn’t at the rate they’ve been increasing the money supply. When people say the Fed is printing money they are covering your bases. “Printing money” can mean lowered loan loss reserve ratios for instance. The dollar has been mismanaged for a long time and the response to the mismanagement of the dollar is being mismanaged.

    I suggest the “printing money” be accepted as shorthand for all the collective mechanisms whereby the Federal government expands the monetary supply i excess of the underlying economic value it supposedly represents.

  38. BDG123 says:

    The Fed IS NOT lowering loan loss reserve ratios. Do all of you people have a bomb shelter in your back yard and vacation in Utah? Throwing out nonspecific gibberish when I can go to the FRB board page and see what they are doing factually……………..

    Are you related to Timothy McVey? Now, why aren’t you bitching about China where money supply has grown at 20% per annum for seven years as posted on the Chinese central bank web site?

    Puuhleeaase!

  39. Max says:

    I agree with BDG123 – M3 can mean many things, including private credit creation. Loonies need to get it through their heads, read a book about finances, and educate themselves. There is nothing wrong with expanding M3, because it can mean demand for money is growing – healthy economy.

  40. donna says:

    http://www.nowandfutures.com/key_stats.html

    Nope. No money printing going on here. The fed is perfectly rational. Obviously demand for money is just growing because our economy is so healthy!

    C’mon, guys…..

  41. Max says:

    OK, I went there – no evidence of money printing by the Fed. Just because M3 is rising doesn’t mean the Fed is doing it. M3 is rising because the credit is expanding, which is totally different from money printing.

    I hate it when goldbugs distort the truth, often to their own disadvantage of being perpetual whiners/losers.

  42. BDG123 says:

    Max,
    I think you put it best. Go read a book. There is obviously a severe lack of understanding in the conspiratorial camp. Or more bluntly put, ignorance is bliss. To believe all of this is to believe Ben Bernanke and the Fed organization is corrupt and has a death wish for the American people.

    Of course, I could change my tune. If I coddled the fringe, I might be able to vacation for free in Utah. Hey, maybe even pick up a few wives along the way.

    Come forth with facts and we can have a civilized debate. Spew fringe conspiratorial arguments without facts and I’ll just make fun of you because effectively you are making fun of others by implying they are stupid when there isn’t a poster on here that wouldn’t be pissing their pants and clueless if they were handed Bernanke’s job.

  43. jkw says:

    The easiest way to determine if the Fed is printing money is to look at the Forex market. If the Fed was printing too much money, the dollar would plummet. Unless you think the Forex market is being manipulated. I don’t think anyone has ever seriously suggested that the dollar/euro rate is manipulated, even if dollar/asian currencies is. You can also look at the dollar against Canadian, Australian, and British currencies for further free-market evidence.

  44. BDG123 says:

    Now that is an intelligent statement

  45. Eclectic says:

    per BR:

    “Inflation was VERY understated; It is probably still being understated, but much less so — Once any real contraction starts, inflation will drop precipitously.”

    ….bingo, says Eclectic

  46. Eclectic says:

    MarkM,

    I’m sittin’ here kickin’ back a double and laughin’ at what you wrote.

    Please… do us all a favor and make up a name that doesn’t have ‘Mark’ in it… anywhere…

    Cause, you see… we’ll all recognize that the true identity behind whatever moniker you use will be good old trusty MarkM (your writing will be a ‘tell’), and you won’t have to worry about the ass deep supply of Marks in the world.

    I mean, really… surely you don’t think we need to visualize you as a person named Mark, now do we? No, of course not… what we recognize is the intellect… the id that supersedes the physical self.

    I’m even going to nominate some possibilities for you:

    How ’bout?

    -Strategic
    -Pacesetter
    -Seeker
    -Stingray

    Want more?

    Now, when you finally decide on one, then you won’t have to worry when some new Mark stumbles in to our merry group after just getting off the bus from Dumbfuckistan.

    All in fun… all in fun.

  47. blam says:

    Check out the pretty picture on “The Mess that Greenspan Made” blog site. That crazy conspiracy theorist seem to think that the “m3″ equivalent has been growing at a non-inflationary ~ 12 pct.

    Kinda looks like the Fed has been busy.

  48. hbhh says:

    Well, Ok then.