To make matters worse, first-time jobless claims are hovering around a 26-year high, which they explain as “elevated readings” that “indicate the labor market is deteriorating as the economy heads into a second year of a recession.”

In fact, 6 of the 10 components of the Leading Indicator were down, using words like “slump”, “plunging,” and “record low.”

And after all of that bad news, the only thing that actually made it a zillion times worse than it looks is that “A surge in the money supply adjusted for inflation, which has the biggest weighting in the index, prevented the gauge from falling even more. The measure added 0.6 percentage point”!

The sharper-eyed of you will no doubt notice the way I stuck an exclamation point at the end of the sentence to indicate special importance, which I think is actually understating the case, which is entirely uncharacteristic of me, as I usually go freaking berserk when it comes to such gigantic expansions of the money supply because it means gigantic rises in consumer prices!!

But this is not about inflation, but about indicators, which brings us to the Conference Board’s index of Coincident Indicators, which is “a gauge of current economic activity”, which also fell, by 0.3%. This is the index, in case you were wondering, that “tracks payrolls, incomes, sales and production,” which are “the figures used by the NBER to determine the start of recessions”, which, in talking about recessions like the one we are now officially in, they just found out started last year! Hahaha! Not very timely!

I will say that to be fair, this kind of pronouncement of recession, like announcing, “We’re in a recession, just like The Loudmouth Mogambo (TLM) has been screeching about, over and over and over until we are sick of hearing it!” has to be calibrated in extreme hindsight to make sure that any change of trend is not some transitory statistical noise.

And so with such latitude, now the Conference Board sees that “The coincident index peaked in October 2007, two months ahead of the start of the downturn”, which is kind of impressive in its own way.

But the most interesting indicator, as far as I am concerned, is their Lagging Indicator, because this one can be looked at as an inflation forecaster, and it is my primal fear of inflation that is responsible for not only the Mogambo Bunker Of Crippling Paranoia (MBOCP), but the horror of price inflation is also at the root of my rabid insistence to buy gold, silver, oil and commodities with one hand and have as much defensive firepower as you can muster in the other.

And the reason is that the Lagging Indictor with its inflation detector attributes has been rising faster than the other two for as long as I can remember without doing the actual work to look it up.

But the point is not that I am a lazy guy who doesn’t give a crap anymore, but that the Lagging Indicator is doing it again this month, as it actually rose 0.1%, which ain’t much, but seemingly significant in the face of the other two indicators literally falling, and which have been falling for, again, as long as I can remember without, you know, actually researching anything or getting up off of my fat butt.

In case you were wondering, the Lagging Indicator index “measures business lending, length of unemployment, service prices and ratios of labor costs, inventories and consumer credit.”

For those who are technically-oriented (and who isn’t, to one degree or another?), I had never heard that “The end of the recession won’t be signaled until the leading index and the ratio of coincident-to-lagging indicators turns positive for at least three months in a row”, which was revealed by Ken Goldstein, an economist for the Conference Board itself.

Intrigued by the revelation, I thought that maybe since this Mr. Goldstein was so good at this stuff, his charts would have prompted him to say something like, “All you morons out there ought to do like Mogambo says, and start accumulating gold, silver, oil and commodities, because all of this freaking money that is being created Around The Freaking World (ATFW) is going to produce one hell of a big inflation in consumer prices and distort the economic landscape into something weird and Very, Very Ugly (VVU)!”

But he did not say that, and so that is why I am wasting your precious time by saying it now; buy gold.

And I really, really, mean it, too, as you can tell by looking deep, deep, deep into my bloodshot eyes and seeing my Utter, Utter Sincerity (UUS). Awesome, right?

Source: No Lag When Indicating Inflation

The currencies were lifeless yesterday, with only a blip up in euros to 1.2740, only to give it back overnight. Aussie dollars (A$) rallied on the Huge 100 BPS rate cut news from the previous night, but at the end of the day, that was all but forgotten… It was as if the currencies did a Hans and Franz… Got all pumped up… But then turned into 100 lb weaklings again as the day turned to night.

Hey! I’ve written a bit about China this week, and the renminbi, and I must have scared quite a few holders of the currency, because, my trading screen is lit up with nothing but renminbi sell trades… Interesting… For the last couple of years, I tried to illustrate a picture that would show that owning Japanese yen, was a far better choice than Chinese renminbi… But, that fell on blind eyes… I see that UBS (Union Bank of Switzerland) believes that there “limited scope” for renminbi to drop much further, while Morgan Stanley believes we’ll see a 10% drop in renminbi…

I think I will pin my colors to the UBS mast on that one… I just can’t see why China would want all the negative press that would go along with allowing their currency to drop VS the dollar by 10%… The UBS research team said that, “Depreciation would likely invite criticism that china is a adopting a beggar-thy-neighbor type of policy, leading to possible protectionist responses from China’s major export markets.”

The NBER call on the recession brought out a lot of economists that are saying, “they knew it all along”… Yeah, right… However, there was one particular economist / analyst that has been saying the U.S. was in a recession for years! That’s our old friend, John Williams of Shadow Statistics (shadowstats.com) I would love to show you the chart, but the Pfennig template doesn’t allow me to do that… So, you’ll just have to read about it!

Shadowstats.com uses a methodology that calculates GDP “old school” and when using this methodology, Showstats.com says that beside a brief blip into positive growth in 2004, the U.S. economy has been in negative GDP growth since 2000! I guess, John Williams won’t be asked to be the keynote speaker at the NBER holiday party, eh? HA!

The U.S. data cupboard gets restocked today as we build to a crescendo on Friday with the Jobs Jamboree. Today, we’ll see the ADP employment report, which as I’ve explained in the past, is a good indicator as to what we can expect in the Jobs Jamboree numbers. ADP is forecast to show a negative -200K job loss in November. Right now, the Jobs Jamboree is forecast to show a negative -325K job loss in November, so the ADP report is no sight for sore eyes over at the Bureau of Labor Statistics (BLS), who count the beans on the Jobs Jamboree. (and quite poorly, I might add!)

The “stupid” Productivity data for the 3rd QTR will also print… The old Fed Chairman, Big Al Greenspan, used to think the world of Productivity… He thought is was the “end all” in the “new economy” and the reason inflation stayed low, and he could keep rates low… Well, it wasn’t the “end all”, and the “new economy” was a bust, inflation wasn’t really low, it was just “adjusted with changes to the CPI basket of goods to make inflation figures look low, and keeping interest rates so low, is the root of all evil for us today, now weren’t they…

The awful fundamentals continue to mount for the U.S. and the dollar… But, as I’ve said over and over and over again, this dance is gonna be a drag… No wait! I have no idea where that Dave Clark 5 song came from! But, as I’ve said before, and will say again… These fundamentals are being swept under the rug and ignored, as long as the Credit Crisis has a tight grip on the markets. But, in my heart of hearts, I truly believe that all this bad data will come back to haunt the dollar, if the Credit Crisis can get some WD-40 applied to it, and unlock it.

The Reserve Bank of New Zealand’s rate cut announcement should be coming forth this afternoon. Yesterday, I said I thought the RBNZ would cut 150 BPS… They very well could go more than 150 BPS, as their internal cash rate was the highest in the industrialized nations before all this rate cutting began in September.

I saw a piece of data that pointed out that Commodity Prices are down 18% YOY. OUCH! This is the worst performance for Commodity Prices since 1991. This is the main culprit in the poor currency performances of the Commodity Currencies like: A$, kiwi, loonies, rand, and real… (Australia, New Zealand, Canada, South Africa, and Brazil) This, and the unwinding of the Carry Trade, which hurt the high yielding Commodity Currencies, A$, kiwi, rand and real. So, a double whammy hitting these guys…

So… You have to ask yourself this question… Do you believe the Commodities are finished? Is this the end of their bull market that lasted only 7 years? Remember, our friend, Jim Rogers has documented that for over 200 years, Commodity Bull Markets averaged 17-22 years in length… And you might be saying but Chuck, you just said that Commodities were down 18% this year… Doesn’t that tell you that it came to an end? Ahhh… Grasshopper… This Bull Market is a Trend, and trends are not “One-Way Streets” they have volatility, and they can see losses… But in the end, the underlying fundamentals return and the trend continues.

This is exactly what I tell you about the currency trends all the time… We had dollar weakness from 2002 thru 2004, then dollar strength in 2005, only to return to the underlying fundamentals in 2006, 2007, and 1/2 of 2008. Was the dollar strength in 2005 the “end of the weak dollar trend”? No! it wasn’t… And I truly believe that the dollar strength since July this year will prove NOT to be the end of the weak dollar trend now!

You know, one of the things fueling dollar strength right now is the flight to safety in U.S. Treasuries… Oh by gosh, by golly, it’s time for mistletoe and holly, and some straight talk about Treasuries. Everyone and their brother is buying Treasuries, which pushes the prices of the asset higher, and the yield lower… Big Ben Bernanke must be getting a bonus at the end of the year, for the Treasuries he sells… I say this because he announced the other day that the Fed is “considering” to buy long term Treasuries. (when you see “considering” just figure that it’s a done deal!) Well, the Fed hasn’t bought long term Treasuries since I was a kid, the Beatles were new, and I had hair!

For your troubles… A 3-month T-Bill will pay you 6 BPS… Folks, after the broker takes his pound of flesh to do the trade, you are paying the Gov’t to hold your money! Want to go out further on the yield curve? OK… How about a 10-year Treasury? 2.70%, which again, will barely pay you anything by the time the broker charges you to do the trade. And those “long-term Treasuries” that Big Ben is “considering” buying? Where do I sign up for 3.2% yield in a 30-year Treasury… NOT!

It’s crazy! I don’t see the appeal… Especially considering the fact that when the Credit Crisis in unlocked, the unwinding in these “safe” Treasuries should be quite swift and push the price of those bonds down quickly, which will cause some investors to book losses, while paying the Gov’t to hold their money…

These are just my thoughts… Market commentary…

OK, before I head to the Big Finish, someone asked me to talk about Swiss francs, as they think that Swiss Banking is going to cause a Big problem for the franc. Hmmmm… Could be, but I would think the Swiss, being a rich nation, would be able to deal with the problems that UBS and others have without causing too much of a problem for them and the franc. I still think of Swiss francs as a very good alternative to euros… Along with Norway, Sweden and Denmark… All surplus / positive balance of payments countries…

Oh, and this one last thing… I saw where mortgage applications more than doubled last week. This is probably the result of the announcement that the Fed will begin to buy mortgage backed debt directly… Yes, that’s right folks… The Gov’t may very well own your mortgage in the future… Now, as inviting as having a Gov’t guaranteed loan might sound… Does anyone else find this arrangement to be creepy?

Currencies today 12/3/08: A$ .6435, kiwi .5295, C$ .7985, euro 1.2645, sterling 1.4735, Swiss .8265, ISK (no quote yesterday), rand 10.2825, krone 7.0850, SEK 8.2675, forint 207.25, zloty 3.03, koruna 20.18, yen 93.20, baht 35.55, sing 1.5290, HKD 7.7515, INR 50, China 6.8820, pesos 13.61, BRL 2.4190, dollar index 87.07, Oil $47.29, Silver $9.43, and Gold… $776.75

Source: Automakers Say They Need Funding Now

But if the central bank does pare short-term interest rates, it’s likely to be the last such move in awhile; the Fed will take a break and give its rate cuts a chance to work their way through the U.S. economic system.

Despite an active-economic-calendar schedule this week – which includes a report on first-quarter gross-domestic product, and several other statistics that could confirm that the U.S. economy is entrenched in a recession – the Fed’s machinations should dominate this week’s headlines, given that the central bank’s interest-rate-setting arm is set to meet Tuesday and Wednesday.

Any announcements about interest rates will be made at 2:15 p.m. Wednesday. Experts also say that whatever the Fed says about its expectations will be just as important as what it actually does to the benchmark Federal Funds rate.

“I don’t think there’s any question that they’ll cut [a quarter-percentage point] off the rate,” David Rosenberg, chief economist for Merrill Lynch & Co. Inc. (MER), told The International Herald Tribune. “The real question is what they say about the future. It won’t be an ‘all clear’ signal. But they’ll find a way to tell the markets that they’ve done enough for now, simply put.”
Not everyone agrees.

“There is no reason why the Fed should be cutting rates right now,” Richard Yamarone, director of economic research at Argus Research Corp., told MarketWatch.com.

Yamarone may be thinking back to some of the public comments certain of the central bankers themselves have been making.

Back on April 18, Fed officials hinted that they would be reluctant to cut the benchmark Federal Funds rate yet again, given that the slumping U.S. economy also faced a major inflationary threat. Indeed, Philadelphia Fed President Charles Plosser warned against believing that interest-rate cuts were “the solution to most, if not all, economic ills.”

Plosser is one of the Fed’s major anti-inflation hawks At the time, Plosser was merely the latest in a string of policy-makers to warn about the rising risks of inflation, essentially suggesting that another rate cut would probably be a very tough sell.

In a speech at Drexel University’s LeBow College of Business in Philadelphia, Plosser said real interest rates were now at “an accommodative level, meaning borrowing costs were low enough to start boosting the U.S. economy’s growth rate back toward its normal historical norm, Reuters reported.

The futures market is projecting a Fed Funds rate of 1.75% by the end of this year. Here’s a look at the futures market’s month-by-month expectations for short-term borrowing costs for the remainder of 2008:

• April: 2.17%.
• May: 1.89%.
• June: 1.85%
• July 1.79%.
• August 2008: 1.76%.
• September 2008: 1.76%.
• October 2008: 1.77%.
• December 2008: 1.73%.

The worries about inflation that Plosser and other inflation hawks have are very real. And those concerns don’t exist solely on our side of the Atlantic. The low U.S. rates are contributing to a weakness in the greenback that’s sent the American currency to record lows against most other key world currencies. That’s fueling a massive run-up in the cost of energy and food-related imports – and that’s inflationary for U.S. buyers.

But it’s made U.S. exports very competitive abroad, acting almost as a big discount for foreign buyers of such wares as Boeing Co. (BA) jetliners. In fact, just last week Boeing surprised Wall Street with record earnings and announced a record order backlog. And pan-European arch-rival Airbus SAS., was forced to announce a price increase on several  of its commercial airliners – because of rising steel prices and because of the falling dollar.

French Economy Minister Christine Lagarde yesterday (Sunday) that the gap between the U.S. and Eurozone interest rates was way too large, and called for a change in rate policies on one side of the Atlantic, or the other.

“We are in a delicate situation where we have, on the one hand, an American Federal (Reserve) which has a policy of very low rates and a European Central Bank which has maintained high interest rates,” Lagarde told LCI Television and RTL Radio, the global wire service Reuters reported. “The differential in interest between the two, it seems to me, is a little too big at the moment.”

Paris has long been a vocal critic of what French President Nicolas Sarkozy has termed the ECB’s overly narrow focus on fighting inflation – and has previously been criticized by Germany for meddling in the business of the “independent” central bank.

With Eurozone inflation running at about 3.6% – its highest rate since the measure for that portion of the European market began in 1997, the European Central Bank (ECB) has left its key refinancing interest rate unchanged at 4.0%, despite some very definite signs that Eurozone growth is slowing.

By comparison, the key U.S. interest rate is at 2.25%, though it may be heading lower this week, and inflation is “officially” said to be at right about 4% – though such experts as Money Morning Contributing Editor Martin Hutchinson believe the actual U.S. inflation rate is actually much higher.

Although the FOMC meeting is likely to top the economic the economic news of the week this week, the GDP report will come in a fairly close second and will be nearly as closely watched by some experts. The reason: Many eternal pessimists are expecting the report to show negative growth during that three-month period.

Why is that important? Simple: According to the National Bureau of Economic Research (NBER), two consecutive quarters of negative growth constitutes a recession.

Most folks “feel” like the U.S. economy is already in a recession. An official designation by the NBER – which usually comes well after the fact – would simply make it official.

In the meantime, some of these other reports this week could help serve as an interim and unofficial “confirmation” of that dour diagnosis of the U.S. economy:

• The health of the manufacturing sector will get a solid assessment via Thursday’s release of the much-watched ISM survey and Friday’s report on factory orders.
• The all-important U.S. labor markets will get significant scrutiny via Thursday’s report on initial jobless claims and Friday’s reports on the U.S. unemployment rate and on non-farm payroll data.
• We’ll get a bit more insight into the psyche of the American consumer with Tuesday’s report on consumer confidence for the month of April and Thursday’s report on personal income and spending for the month of March.
• And we’ll get an overview of Corporate America’s health, as U.S. energy giants Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) reveal how their profit reports have been boosted by record energy prices [likely also prompting new calls for Congressional investigations into allegations of price gouging].  Starbucks Corp. (SBUX) will follow up recent warning with an actual announcement, while Office Depot Inc. (ODP) and Radio Shack Corp. (RSH) will give investors a look inside the world of retail.

Market Matters

Two weeks ago, investors disregarded any semblance of bad news (and lately, there has been plenty) and instead took the stock indices to their highest levels in months. Last week, investors allowed the earnings releases to guide their trading activities while awaiting the Fed’s interest-rate decision and commentary.

So just what did the recent earnings reports say about the current state of Corporate America?

Financialscontinue to stoke the negativity (no surprise there) with Bank of America Corp. (BAC), investment banker Credit Suisse Group (CS), and bond insurer Ambac Financial Group Inc. (ABK) reporting more disappointing results.  Drugmakers, on the other hand, enjoyed a nice quarter with Merck & Co. Inc. (MRK) and Novartis AG (NVS) beating expectations.  While a sluggish economy can’t keep folks out of McDonald’s Corp. (MCD) (as least in its international markets), it does seem to be impacting coffee intake as Starbucks warned that this week’s results (and those for all of 2008) will miss earlier projections.  Of course, dire times lead to more nervous smoking (and higher cigarette sales) as happy Philip Morris International Inc. (PM) shareholders found out this quarter.  While cost-conscious folks stayed home and watched more DVDs, Netflix Inc. (NFLX) warned that future subscriber growth may be limited.

Both Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWA) posted sizable losses on skyrocketing fuel costs, leading some analysts to question the wisdom behind the proposed merger. While the world’s largest shipper, United Parcel Service Inc. (UPS), experienced a jump in profits, management expressed concern about the quarters to follow, since consumers just don’t seem quite as interested in finding out “what Brown can do for you.”  Even techs, which previously had been a savings grace for the market, turned pessimistic this week.  Apple Inc. (AAPL) and Texas Instruments Inc. (TXN) reported decent earnings, but warned about their respective outlooks.

Likewise, high-tech bellwether Microsoft Corp. (MSFT) disappointed with its profit numbers, while investors wait with trepidation to see what becomes of Microsoft’s bid for Yahoo! Inc., (YHOO). Meanwhile, Yahoo beat “The Street’s” expectations. However, the three-week deadline that Microsoft gave Yahoo to come to an agreement on its unsolicited bid passed Saturday without any announcement from either side, leading to the possibility that the battle for Yahoo is about to turn hostile, MarketWatch.com reported.

ConocoPhillips (COP) showed that record energy prices are not hurting everyone, as the No. 3 U.S. oil company reported a 17% increase in profits.

Transactions typically imply growing confidence in corporate boardrooms as management finds the value in certain acquisition targets.  Last week, News Corp. (NWS.A) moved closer to buying Newsday and giving Rupert Murdock greater control over the New York press.

Insurance giant Liberty Mutual Holding Co. Inc. agreed to buy SAFECO Corp. (SAF) in a $6.2 billion deal that will create the 5th-largest property and casualty firm.  Triarc Cos. Inc. (TRY) soon may be adding those terrific “hot-and-juicy” square burgers and addictive Frosty drinks to its Arby’s roast-beef-sandwich menus as it looks to acquire Wendy’s International (WEN) in a deal valued at $2.34 billion. And, of course, there’s still the Microsoft-Yahoo proposal.

With a mixed week on the earnings front, stocks traded relatively flat as investors took some profits from last week’s newfound bullish sentiment, while still searching for a bargain or two.

Economically Speaking

For many Fed-watchers, the prospect for another rate cut has been a foregone conclusion.  After all, central bank Chairman Ben S. Bernanke and clan have let their creative juices flow [not to be confused with the creative juices of those Wendy’s hamburgers] over the past few months; the Fed has tried everything from the aggressive rate-cutting campaign to liquidity injections to arranging the buyout of The Bear Stearns Cos. Inc. (BSC) by JPMorgan Chase & Co. Inc. (JPM).

Suddenly, some great prognosticators believe the Fed may be “seven and done” as they drop the Federal Funds rate again (by a minimal quarter of a percentage point this time around) – before going on a “summer hiatus” to give their earlier work the time to take effect.

With oil prices hovering around the (once unheard of) $120/barrel level, some policymakers are sure to claim that inflation should be considered as critical a concern as the sluggish housing market to the U.S. economy’s health. Indeed, comments such as those of Philly Fed President Plosser make it clear that inflation is already becoming an increasingly important consideration.

Additionally, the European Central Bank seems content to keep its lending rate at 4%, so further Fed actions will continue to have devastating impact on the value of the dollar.

The economic calendar was relatively light last week as analysts rested up for this week’s vast array of important data. After a surprising climb (better known now as an aberration) in February, existing home sales plunged again in March, while new homes sales fell to their lowest level in more than 16 years.

Furthermore, the median price of a new home dropped by more than 13% last month, the largest such decline in almost four decades.

Durable goods orders fell in March, as well, although once the volatile transportation sector was removed from the equation, the results did not look half bad.

We hope that investors and analysts got plenty of rest over the weekend to get ready for the bustle of economic reports due throughout this week. Talk of recession should resume with the release of the first-quarter GDP, which many eternal pessimists believe will show negative growth during that three-month stretch.

Weekly Economic Calendar