Goldilocks Gets Eaten

Wednesday, November 01, 2006 | 06:00 AM

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.


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 . . .


Goldilocks Gets Eaten
David A. Gaffen
WSJ MarketBeat Tuesday, October 31, 2006  11:40 am

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Tracked on Nov 1, 2006 12:00:38 PM


"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.

Posted by: Eclectic | Nov 1, 2006 7:28:20 AM

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