Still More Inconvenient Facts

The Senate Committee on the Environment and Public Works submitted this press release, taking the AP to task about biased reporting in favor of "Inconvenient Truth".
http://www.epw.senate.gov/pressitem.cfm?party=rep&id=257909

It is curious why a news organization would go out of its way to misrepresent this film's accuracy. Is this just sloppy reporting? Or something more?

Also note that the "majority" of the Committee released this report. Does this mean that Democrats on the committee thought that inaccurate and misleading reporting was OK? Or were they simply not consulted?

EAM

Myspace: Dangerous to Middle Aged Guys?

We've heard much lately about the dangers to young girls posting on the website myspace.com and meeting predators who harm them. Today's Drudge Report contains a link to a story with the "man bites dog" quality: teen girls robbing a man they met on myspace.

It seems a middle aged guy wanted to meet someone he thought was an adult woman interested in a "fun relationship". After corresponding, he went to meet her at what he thought was her apartment, where he was met by two teenaged girls. He recognized that they were not the person he had intended to meet, and that idea was reinforced when they proceeded to pull a gun and attempt to rob him. They were later apprehended by police. (Is stealing your dignity a crime? The poor guy didn't get robbed because he forgot his wallet. Yeah, chicks dig that when you take them out.)

I don't understand what leads people to attempt to meet others they found on websites. I understand loneliness, but don't these people have friends who can introduce them to someone suitable? Are they thinking at all? What drives one take such risks? Incidents like this one may help shift that risk calculus toward the "not gonna do it, wouldn't be prudent" side of the scale.

The story is here:
http://www.woai.com/news/local/story.aspx?content_id=7F710484-5201-42E7-934B-D86CF9E6B65F

EAM

Still More Inconvenient Facts

My smart pal Ralph Whitten pointed out this article by MIT Professor of Atmospheric Science Richard Linzen, in yesterday's Wall Street Journal. It contains an excellent discussion of global warming issues. The article, which is found on the opinion page (A14) from Monday, June 26, 2006, can also be found online here (subscribers only):
http://online.wsj.com/article/SB115127582141890238.html?mod=todays_us_opinion

One of his best points: "there is a clear attempt to establish truth not by scientific methods but by perpetual repetition." (Hopefully my repeated posts in this area are not interpreted as a converse example!)

EAM

The New York Times Loses a Battle in Its War on Bush

The New York Times has once again decided to divulge the details of a secret US program for fighting the war on terror. This time the targeted program is one in which the US is able to track money transfers crossing international borders initiated by known or suspected terrorists. Apparently the editorial decision was made in the face of appeals from the Administration as well as members of both parties in the Congress not to publish the story. In a subsequent editorial, the Times declared that the program poses such a threat to the privacy rights of Americans that whatever contribution it might be making to the national security is rendered irrelevant.

I am not persuaded by the New York Times' explanation; and neither is the Administration and its allies, who have publicly rebuked the Times. However, I am also not persuaded that the Times has done much damage in this instance. It seems unimaginable that al-Qaeda, or any other terrorist organization or state, is unaware that the US was (is) monitoring international financial transactions. In fact, I remember many in the Administration publicly discussing the possibility of doing just that in the wake of 9-11.

So, what might be behind the Administration’s campaign to marginalize the Times on this issue, a campaign that appears to be headed toward certain success? I see three plausible explanations for the Administration’s reaction. First, the Bush team sees an opportunity to warn the so-called mainstream press away from divulging other programs that are in fact far more sensitive in nature. A decidedly negative public reaction to the Times story will likely succeed in influencing future editorial decisions. Second, a strong public reaction by the Bush Administration sends the message to those in the CIA, NSA, and State Department who continue to violate the public trust by taking it upon themselves to divulge national security information with no regard whatsoever for their solemn oath not to do so that they will be “brought to justice.”

Finally, on the political front, the Bush team perceives that the Times and its allies within the intelligence community, who are revealing the existence of these programs with the intent of undermining the war on terror and forcing the US out of Iraq, have over-reached on this one. Misreading the public dissatisfaction with the strategy for victory as a readiness to "cut and run," the Times had intended to deal a knock-out punch to the President. Instead, they have succeeded in highlighting that the opposition, of which they are a part, has no interest in victory. Rather, it acknowledges (and even wants) a US defeat in Iraq. This could not have come at a worse time for the Democratic Party, coming as it did in the same week in which its congressional delegation split on a strategy of victory or withdrawal. The Times had hoped to solidify support for the latter and unify the Party. Instead, it has only further contributed to the split and a public perception that the Democrats are weak on defense.

More Inconvenient Facts

Adding to yesterday's post about inconvenient facts about "Inconvenient Truth", here is an excellent piece by H. Sterling Burnett of the National Center for Policy Analysis. One key point: even if global warming is occurring, the extent to which human activity can change the outcome is an important question that is not being addressed.
http://www.ncpa.org/pub/ba/ba561/

Commentary from the Competitive Enterprise Institute on the recent release of the Natioanl Research Council's study on Surface Temperature can also be found here:
http://www.cei.org/gencon/019,05397.cfm
Their take: nothing new in finding that warming is occurring, but a basis for a continued upward trend is not proven.

Also from the CEI is this commentary on the recent talks between the USA and EU. Their take: the Kyoto protocol is dead. Their comments can be found here:
http://www.cei.org/gencon/003,05396.cfm

Have and Happy and Warm Summer Friday.
EAM

Inconvenient Facts Undermining "Inconvenient Truth"

Iain Murray of the Competitive Enterprise Institute offers this list of 25 problems with the current Al Gore book/movie on global warming. The skepticism grows ...

http://article.nationalreview.com/?q=YmFiZDAyMWFhMGIxNTgwNGIyMjVkZjQ4OGFiZjFlNjc=

EAM

Blockade is Crumbling, cont'd

Marvin Olasky continues with another column dealing with China, this time focusing on the growing prevalence of house churches. Like websites, churches are supposed to register with the government. However, many do not, and growing numbers of Chinese are finding their way to worship in small groups meeting in homes and apartments.

Though he reports that his column withholds names and locations, he also indicates that one worship service he attended in an apartment was held with an open door. Ironically, the only closed door there was where bootleg DVDs were being made. (What is that saying about light and darkness? Hmm.)

All very encouraging, positive stuff. We need to develop an index of leading indicators for freedom and opportunity!

Olasky's column can be found here:
http://www.townhall.com/opinion/columns/marvinolasky/2006/
06/22/202202.html
(you may have to cut and paste - blogger does not want to wrap long urls)

EAM

The Blockade is Crumbling: Kristof Column

Nicholas Kristof had an interesting column in this morning’s paper on the phenomenon of blogging in China. From his perspective, it looks like the censors can’t quite keep up with the bloggers; criticism of the government and its policies has an outlet that is proving hard to stop.
(You can find his column on the NYTimes site, but you must be a subscriber.)

At a conference I attended in Hamburg last May, we discussed the matter of the Internet in China with Chinese scholars from the mainland, as well as from Taiwan and Hong Kong. Their perspectives about freedom were quite different. The scholar from the mainland indicated that web site development on the mainland requires a license from the government, and is strictly regulated. (However, these blogs apparently got by that regulatory process.) Those from outside the mainland criticized these restrictions, and in this sense the mainland scholar was put in an awkward position of defending the party line in the face of polite yet powerful criticism about the free flow of information.

There is hope here, to the extent that greater information flows mean greater openness to ideas and change. Marvin Olasky also recently had a column on Chinese businessmen turning to Christianity in a quest for meaning. That column is freely available on Townhall.com, here:
http://www.townhall.com/opinion/columns/marvinolasky/
2006/06/15/201338.html)

(Hmm. Did you just notice that the NYT restricts your freedom to read on the Internet, while the conservative columnists on Townhall allow free access to their ideas? I don’t blame the NYT for charging for the privilege, but it is rather ironic coming from this bastion of liberal thought.)

EAM

Blocking Foreign Investment Is a Mistake

Senate Banking Committee Chairman Richard Shelby, Republican from Alabama, is sponsoring yet another protectionist bill -- the Foreign Investment and National Security Act of 2006.

http://washingtontimes.com/op-ed/20060617-113209-4364r.htm

The bill, if ultimately passed, -- would add new barriers to the flow of foreign investment into the U.S.. The bill would reduce foreign direct investment which has been an important contributor to U.S. growth during the 1990s. My co-authors and I recently completed a study that will be published early next year examing the impact of foreign capital on U.S. productivity growth.

http://www.outlook-economic.com/ResearchAndNews/Research/fdiprod5.pdf

U.S. Bureau of Labor Statistics productivity data show output growth per hour since 1995 roughly doubling the rate achieved over the preceding two decades. A rapid inflow of foreign investment paralleled the growth in productivity, suggesting a positive link between the growth of productivity and foreign capital. The goal of this study is to investigative this relationship and determine the extent to which foreign capital contributed to U.S. productivity growth during this period of rapid productivity growth. Applying a Cobb-Douglas production function to data from 1988 to 1999, we found that foreign capital accounted for twenty-six percent of U.S. productivity growth between 1995 and 1999, but had little impact on productivity growth from 1988 to 1994.

Delightful Irony: Speech Codes for ACLU Board?

A story in today’s New York Times online by Stephanie Strom, entitled ACLU Board Members Debate Limits on Their Own Speech, highlights an ongoing controversy over proposed standards that preclude board members from criticism of this free-speech loving organization. For example, one proposal allows public disagreement with policy, but precludes criticism of the board and staff.

According to the article, one board member observed that adopting these proposals would be 'yet another of "the things that have made us a laughingstock with the public.'” Actually, in this case, just giving them serious consideration is quite enough, don't you think!?!

The article can be found here:
http://www.nytimes.com/2006/06/18/us/18aclu.html?_r=1&th&emc=th&oref=slogin

EAM

Mainstreet Economy Slows for June

Mainstreet at a Glance:

*Economies of the non-urban, agriculturally dependent portions of the eight-state area weakened for the month.

*Hiring in rural areas was solid for the month with Wyoming, Colorado, Nebraska, South Dakota, Missouri, Iowa and Illinois showing gains, Bankers in Kansas reported job losses.

*More than two-thirds of the bankers expect the Federal Reserve to raise rates at their June 28/29 meetings.

*42 percent of bankers believe recent Fed rate hikes have hurt their area economies.

*More than 58 percent of the bankers expect drought conditions to negatively affect their area economy.

The Mainstreet Economy Survey for June indicates that the economies of the non-urban, agriculturally dependent, portions of the eight-state survey area weakened from May. As in past months, retail sales remained weak across non-metro areas in the region that includes Colorado, Illinois, Iowa, Kansas, Missouri, Nebraska, South Dakota and Wyoming.
Each month community bank presidents and CEOs are surveyed regarding current economic conditions in their area and their projected economic outlook six months down the road.
Bank presidents and CEOs in the region reported contracting economic conditions as the overall index declined to 46.7 from May’s solid 54.5, and below growth-neutral 50.0.

http://www.outlook-economic.com/MainstreetEconomy.html

Bankers continue to detail weak retail sales with large national retailers draining sales from smaller and local sellers. “The Wal-Mart effect continues to drive main street businesses in rural America out of business--it has been devastating,” said McQuillan.

Farm land prices continue to grow, say the bankers, with a June reading of 61.3, up from May’s index of 60.9. “We had a quarter of dryland sell within 20 miles of Courtland (KS). It brought $2,750 an acre - unheard of for our area,” reported Michael Johnson, President of Swedish American State Bank in Courtland, Kan.

“Due to the higher costs associated with irrigation, dryland continues to expand at a faster pace than irrigated land,” said Goss. For June, 58.1 percent of the bankers expect drought conditions to negatively impact their local economies. “Weather conditions will have the most significant impact on our local economy,” said Craig Brewster, CEO of Butte, Neb., State Bank. “Drought severity has increased, causing anxiety in all areas of commerce,” said John Nelson, President of First Tier Bank in Holdrege, Neb.

Home sales remained weak in the eight-state area with a June reading of 43.5, down from May’s 45.5. However, the lack of available homes continues to hurt sales. Kurt Henstorf, President of the First National Bank in Shenandoah, Iowa, said, “The biggest problem facing us right now is housing, especially in the middle range of prices.”

Loan volume was strong for the month with an index of 61.3 as farmers turn to local banks. “It appears that input costs for our agriculture customers are up at least 10 percent over cash flow projections. Many of our customers are asking about additional borrowings to cover these costs,” said CEO James Brown of Hardin County Savings Bank in Eldora, Iowa.
Not surprisingly, farm equipment sales dropped below 50.0 for the third straight month to 42.9 from May’s tepid 43.5.

Hiring in the rural areas remained strong with a 56.5 reading, but down from May’s 62.1. Higher energy prices pushed Colorado and Wyoming hiring up dramatically while bankers in Illinois, Iowa, Missouri, Nebraska and South Dakota reported solid new hiring. Only bank CEOs in Kansas indicated weak job growth. Job gains associated with ethanol production continue to be important, particularly in rural portions of Illinois, Iowa and Nebraska.

Bankers were much less positive about the economy down the road as the confidence index dropped to 43.5. The confidence index gauges the economic outlook six months from June with an index above 50.0 pointing to a growing economy. Much of the pessimism can be traced to higher interest rates. Nearly 42 percent of the bankers believe that the sixteen rate hikes over the past two years are hurting their economies. Furthermore, 67.7 percent of the CEOs expect the Federal Reserve to raise short-term interest rates at their next meeting on June 28/29.

EPG

State Budgets Growing, Too

A report released by the National Governor’s Association on state fiscal health shows that the federal government is not alone in maintaining its steady growth rate. State budgets are growing by a compound annual rate of 6.4 percent from 1979-2007, which when adjusted for inflation, amounts to real growth of 2 percent.

The report can be found here; it was highlighted in today’s BNA Daily Tax Report.

http://www.nga.org/Files/pdf/FSS0606.PDF

Of particular note: revenues last year came in at over 3 percent higher than budgeted overall, with 37 states ahead, 10 even with budget targets, and only two states reporting financial performance below budgeted expectations. Strong performances in sales and income taxes (both personal and corporate) indicate economic vitality, which is good news.

Note that states seem to keep their budgetary houses in order; query whether we will ever elect a Congress that tries seriously to do the same.


EAM

Skepticism on Global Warming Policies, Cont'd

As Al Gore’s message of global doom spreads through the planet via uncritical coverage through the traditional media and through his film, an Inconvenient Truth, a few people are focusing on the inconvenient facts that undermine his argument. Here’s an op-ed piece from Canadian Tom Harris that is worth thinking about.

http://www.canadafreepress.com/2006/harris061206.htm

Let’s just say I’m not giving up my internal combustion engine, coal-fired electricity, or methane-producing cattle just yet. Nor am I going to help elect those who think this ought to become a policy priority.

Happy Thursday.
EAM

What’s Driving International Markets Lower?

Over the past five weeks, major international equity funds have declined by more than 20 percent. Markets from developed nations such as the U.S to the developing such as India have been whipsawed by factors that most investors did not see coming. The correction has been particularly painful for new 2006 investors. The FTSE 100 (Great Britain) is now down 10 percent from its April peak, the Nikkei 225 (Japan) has dropped nearly 20 percent and the Dow Jones (U.S.) has lost around 8 percent. And emerging markets have even experienced larger losses. India's Sensex index has fallen 28 percent from its peak, while Brazil's Bovespa has plummeted 22 percent.

http://firstrung.co.uk/articles.asp?pageid=NEWS&articlekey=2168&cat=44-0-0


However, the truly clairvoyant investor should have seen this coming. The cries from the inflation mongers have been heard stretching from Brussels to New York to Singapore. As a result, central banks across the globe have been raising interest rates over the past several months to slew this dragon. For example, the Reserve Bank of New Zealand raised the benchmark interest rate nine times since January 2004, to 7.25 percent. As a result, the latest growth forecasts for New Zealand are the lowest since 1999.

http://www.iht.com/articles/2006/06/13/bloomberg/sxnzretail.php

And just last week the European Central Bank raised rates by 25 basis points due to a fear of inflation. This sounds a bit strange to us on this side of the Atlantic with the EU likely to grow by little more than one percent this year. Nothing like inflationary fears and slow growth to wilt any stock market.

And today, the Russian Finance Minister, Alexei Kudrin, stated that bank liquidity (balances at banks' accounts) amounted to RUR860m (approx. USD31.75m) as of June 5, 2006 and stressed that these high levels were due to high Russian interest rates restraining borrowing by businesses.

http://www.rbcnews.com/free/20060614132850.shtml

And as U.S. investors know all too well, the Federal Reserve Open Market Committee has been raising rates over the past two years with rates advancing short-term rates by a full four percent.

http://www.federalreserve.gov/fomc/fundsrate.htm

An additional factor driving markets lower has been a more credible fear of slower economic growth. Expected slower growth in the U.S. and Europe has certainly driven South Korea’s markets lower. Though the South Korean market is up over the past several days, firms dependent on export sales continue to languish.

Remember the goods old days just four years ago when the FOMC was concerned about deflation and lowered U.S. rates to one percent. Just as the Fed was wrong then, it is wrong now. These higher U.S., EU, British and Japanese short-term rates will achieve their desired purpose—lower inflation but also slowing growth to unacceptably low levels.

EPG

Big Spending Causing Deficit Problems

The latest U.S. data show little relief from the ever growing federal deficit. The current estimate, while down from previous CBO “guesses”, still stands at a lofty and unacceptable $227 billion.

The narrowing of the deficit occurred just at the same time that federal spending increased by 8 percent. Rising collections from the richest Americans and corporations helped close the gap. In fact, May tax receipts grew by 26 percent including a 14 percent increase in individual income tax collections, a 30 percent growth in corporate tax receipts and a 22 percent rise in non-withheld tax payments. Of course the major source for non-withheld tax payments was capital gains from stock and bond sales.

This data once again refute the claims that the Bush tax cuts are responsible for the budget deficit. The real problem has been, is and will continue to be overspending by Republicans and Democrats in Washington.

EPG

The News behind al-Zarqawi’s Death

The relentless assault of the so-called “mainstream media” against continued U.S. involvement in Iraq, an assault that is in synch with the growing call by many within the Democratic Party for an immediate troop withdrawal, has succeeded in demoralizing a substantial portion of the American public. In my view, the premise behind the media campaign – that the United States is losing the effort – could not be more wrong. Despite the continuing violence, there has been growing evidence for some time now that the “tipping point” has been reached among Sunni Arabs, that portion of the Iraqi population largely responsible for supporting, condoning or at least turning a blind eye to the insurgency. Significant portions of the Sunni leadership have concluded that they have more to gain from democracy than they do from a reversion to authoritarian rule (which has traditionally meant Sunni rule). The death of al-Zarqawi adds further evidence of this. It appears that Sunni informants provided the key information, and they did so within days of al-Zarqawi having called upon Sunnis to slaughter Shiites.

To put it simply, the insurgency can not survive if Sunnis turn against it. It is time for the media to uncover the real story in all of this: the Sunnis are beginning to conclude that violence is not the best means to achieve their ends. That is good news.

Has Internet Betting Affected the Outcome?

A story posted yesterday indicates that German officials are fretting about the potential corrupting effects of gambling at the upcoming World Cup Matches. The proliferation of sports betting on the Internet has a lot to do with this. Our government banned sports betting in 1993 – except it grandfathered in Nevada. Among the reasons for the ban was the protection of games from corruption.

This issue deserves attention from sports fans. I’m told by those who follow this activity that sports betting can cover even minor league games. If enough money is at stake, no game is safe from corruption. Consider this as the College World Series begins here in Omaha next week.

Here is the site for the article:

www.channelnewsasia.com/stories/sportsnews/view/212190/1/.html

EAM

What's Up with Vonage?

What’s up with Vonage? Not its stock, of course. After a recent IPO at 17, Vonage has dropped to a current price of $12 today, which is up a bit from its low last week of 11.52.Vonage does have customers and revenues, which totaled $387 million during the past year.

A visit to the Vonage website (http://www.vonage.com/) provides a look at some marketing efforts, including their basic service of free calls in the U.S., Mexico, and Canada, as well as some EU countries, for $24.99 per month. For a small business, the figure is $49.99 per month.

This service is cheaper than what I spend with Quest for traditional land-wire based phone service. However, Vonage requires high-speed internet connections. My rural home receives a wireless service beamed from the water tower in Treynor, Iowa, which is about 5 miles away. It is subject to quality variations and speed limits, which may make Vonage impractical for me.

If you want to test your service yourself, Vonage does have a cool feature that graphs your upload and download speed. It is available here: http://www.vonage.com/help_knowledgeBase_article.php?article=497&category=159

Also available on Vonage is the use of a virtual local number for a fee of $4.99/month. Thus, if you want people to be able to call you without charge, you might be able to set up one of these numbers, which will then transfer to your home phone via the Internet. Pretty clever, no?So, since all of this sounds so good, why is the market so skeptical? Scott Patterson has an article in today’s WSJ (available online here: http://online.wsj.com/article/SB114962335948272932.html?mod=home_whats_news_us) that questions whether Vonage is a bargain at these prices.

I don’t usually give opinions on these issues. In fact, I must have one of those virtual numbers assigned to my crystal ball: it seems to be located somewhere there is a perpetual fog. But it seems to me that there is a real problem here from a competitor service, Skype, which is owned by E-bay.

My friend John in Australia introduced me to Skype, which he uses regularly to communicate with his spouse who is often in Europe. You can learn about Skype here: http://www.skype.com/. Skype-to-Skype calls anywhere are free, and through year-end, calls from Skype to the U.S. and Canada are free.Now, let me get this straight: Vonage is charging $24.99/month and its competitor is giving away a similar service. Vonage does get customers, but its operating margin is a negative 83% (http://finance.yahoo.com/q/ks?s=VG) indicating that price competition at this subscriber level is not going to be favorable for Vonage). (Query: will Skype continue to give away this service?) This currently does not look good for Vonage.

Vonage has done a good job marketing, though, as evidenced by an informal poll I took with my students this morning. They are bright, technologically sophisticated people. All but one had heard of Vonage; the converse was true with Skype. (Those who knew about it had heard about its acquisition by E-bay, but had not used this service.)

Another issue for Vonage: a class action suit filed June 6 alleging technical misstatements about the effectiveness of Vonage services in the IPO documents for the company. Though such suits are common when stock prices plunge, this one could present another cloud on the horizon. The PR release for this suit can be found here:
http://biz.yahoo.com/prnews/060606/phtu048.html?.v=37

EAM

P.S. Sorry for the misspellings and multiple posts in the earlier version. Blogger was malfunctioning and I could not get back to edit.

Government Figures: State and Local Revenues

The Census Bureau recently published its compilation of revenues and expenditures by state and local governments for the 2003-04 fiscal year. The summary for all state and local governments can be found here: http://ftp2.census.gov/govs/estimate/0400ussl_1.txt

State and local governments combined took in $2.4 trillion during 2003-04. Of that amount, about $425.6 billion was distributed to the states from the federal government, leaving around $2 trillion coming from other sources. Taxes, including property, sales, and income taxes imposed by state and local governments, totaled about $1.4 trillion. The other $0.6 trillion comes from sources like tuition to state schools, public utilities, insurance trust funds, and the like.

Breaking down state and local government figures, it appears that they are roughly the same size in terms of tax collections. Local governments benefit from some revenues transferred from the state government in many cases, thus complementing this revenue sharing approach from the federal to state governments.

For comparative purposes, the federal government’s receipts for 2003-04 totaled about $1.8 trillion. Spending was higher at $2.2 trillion, reflecting a significant deficit. Thus, the federal government is actually smaller, in terms of total revenues, than the sum of state and local counterparts, though not by much. I doubt if the founding fathers would have ever contemplated near parity in the size of these institutions.

For state by state comparisons, see this website by the Public Policy Institute of New York State, which was cited in last Friday’s BNA daily tax report. It may not surprise you to see that NY has the highest per capita tax rates. As for Midwestern states, Nebraska is at 15 and Iowa is at 28. The list can be found here: http://www.bcnys.org/whatsnew/2006/0531censustaxdata.htm

EAM

A Winning Investment Option

Over the past several months, stock prices on U.S. exchanges have been moving sideways, gold and other commodities have gotten hammered, and the U.S. housing bubble has been punctured. So where are investors going for solid returns and low risk? Many are buying CDs (that’s certificates of deposits), while others are purchasing money market funds. Let me suggest another alternative that is equally safe, but with higher returns—I-Bonds from the U.S. Treasury. (The "I" denotes that the bond rate is inflation adjusted. The base rate is less than three percent, but a 3.5 percent inflation adjustment is currently being applied).

Currently these bonds are paying 6.78 percent with no risk. Furthermore, you do not have to pay taxes on the interest until you sell the bond. There are two negatives: 1) you can only purchase $35,000 per year and 2) the returns will be adjusted downward when inflation rates once again move lower. But in the mean time, purchase these bonds with maximum safety, deferred taxes, and some of the highest returns available.

To buy on-line, go to the following site:

http://www.savingsbonds.gov/

EPG

Weak Employment Report Reduces Likelihood of Rate Hike

Yesterday I wrote that today’s employment report from the U.S. Bureau of Labor Statistics (BLS) held the key to any June interest rate action from the Federal Reserve. Well, the data were released and they were not good for those betting on higher interest rates (that includes me).

For the release go to:

http://www.bls.gov/news.release/empsit.nr0.htm

For a bit of analysis go to:

http://biz.yahoo.com/ap/060602/economy.html?.v=11

The BLS data indicated that the economy added 75,000 jobs in May, far below economists’ expectations of 175,000. Moreover, the BLS revised April’s number downward and also reported that workers' wages grew by a scant 0.1 percent in May. All of this suggests that the nation’s economy is slowing down thanks to past Fed rate hikes, and oil prices up by more than 30 percent over the past year.

Based on the new data, I now place the likelihood of a short-term rate increase by the Fed in June at 25 percent. I will update you as new data are released.

EPG

Another Fed Rate Hike?

Our regional prices-paid index and the national prices-paid index, both released this morning, show that inflation at the wholesale level is higher than what the Federal Reserve Open Market Committee is comfortable with. As the Fed Chairman has stated, "Future moves will be data dependent." The data to watch over the next month are, tomorrow's employment report, the CPI released the middle of June, and the daily yield on 10-year U.S. Treasuries.

http://www.ism.ws/about/MediaRoom/NewsReleaseDetail.cfm?ItemNumber=14650

and

http://www.outlook-economic.com/RegionalEconomicOutlook/
MidAmericanData/MidAmericanRegion.html


At this time, most all data point to another rate hike at the end of June. If the U.S. Bureau of Labor Statistics, in their press release tomorrow, shows that U.S. economy added more than 200,000 jobs in May, I place the likelihood of a rate increase by the Fed at their June 29/29 meetings above 95 percent.

Is this a mistake? In a rate tightening regime, the Fed normally overdoes it by raising rates too long and too high as they did in May 2000 when they increased rates only to see the economy go into a recession 9 months later. I fully expect current rate hiking to restrain growth below levels acceptable to U.S. citizens and businesses. However, the Fed's number one responsibility is price stability--not low rates of unemployment. My bet is, they will overdo it.

EPG