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Thursday, July 15, 2010

Truth or Dare - The Fed vs CNBC



In past articles I have emphasized the importance – no, the necessity – of getting the facts and then forming your own opinions, rather than having your opinions formed for you.

In a hilarious exchange (to me), the Federal Reserve on Wednesday released the minutes of their June 22-23rd meeting, while CNBC simultaneously released a series of articles and commentaries on the same topics as seen in the Fed’s report.

The Frost Report today contrasts the differences between fact and opinion, or, more specifically, the impressions created by a non-emotional source versus the impressions created by a source that is necessarily dependent upon ratings.
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The Fed
“The rise in consumer spending slowed in recent months after a brisk increase in the first quarter….The moderation in spending appeared, on balance, to be aligning the pace of consumption with recent trends in income, wealth, and consumer sentiment. Real disposable personal income moved up at a solid rate in March and April, reflecting increases in employment and hours worked as well as slightly higher real wages, but home values declined in recent months and equity prices moved down since the April meeting. Measures of consumer sentiment improved in May and early June but were still at relatively low levels."

CNBC
Economic Recovery Is Faltering As Shoppers Head to Sidelines
"Even Federal Reserve officials have rolled back their economic outlook for the first time in more than year, saying Wednesday that continued weakness in the job market is hampering growth."
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The Fed
“The anticipated expiration of the homebuyer tax credit appeared to have pulled home sales forward, boosting their level in recent months. Sales of existing single-family homes rose strongly in April, and, although they moved down in May, these sales were still above their level earlier in the year. Purchases of new single-family homes also jumped in April, but then fell steeply in May.”

CNBC
Home Sellers Slashing Prices, While Banks Mow the Lawn
"That heady buzz from the home buyer tax credit is now turning into a grinding headache, as home sellers realize their very temporary, government-induced catbird seat has now fallen back to earth."
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The Fed
"The staff's forecasts for headline and core inflation were also reduced slightly. The changes were a response to the lower prices of oil and other commodities, the appreciation of the dollar, and the greater amount of economic slack in the forecast. Despite these developments, inflation expectations had remained stable, likely limiting movements in inflation."

CNBC
White House Economic Adviser Sees Deflation Risk
"'Yes, it is a risk,' Romer replied when asked during a congressional hearing whether deflation was a risk. Romer also said she did not expect the economy to slip back into recession."
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The Fed
"In sum, the changes to the outlook were viewed as relatively modest and as not warranting policy accommodation beyond that already in place. However, members noted that in addition to continuing to develop and test instruments to exit from the period of unusually accommodative monetary policy, the Committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably."

CNBC
Fed Discussed Steps to Bolster Sputtering Recovery
"Federal Reserve officials cut their forecasts for growth this year and signaled they stood ready to take new steps to keep the recovery alive if the economy takes a turn for the worst."
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Great investors read annual reports (at least the financial sections) before purchasing a stock. They read complex Federal Reserve statements firsthand. They know that in order to be ahead of the game, they need to do the things that average investors do not. When it comes to information, they never take the easy way out. Great investors know that second-hand information results in second-rate decisions.
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Sources used in this article:
Minutes of the Federal Open Market Committee, June 22-23, 2010
Economic Recovery Is Faltering As Shoppers Head to Sidelines
Home Sellers Slashing Prices, While Banks Mow the Lawn
White House Economic Adviser Sees Deflation Risk
Fed Discussed Steps to Bolster Sputtering Recovery
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"I am suspicious of the idea of a new paradigm, to use that word, an entirely new structure of the economy."

Paul Volcker, former chairman of the Federal Reserve