ALAN Greenspan is being told by an influential advisory group that he has relied upon in the past that the pace of economic growth in the U.S. is slowing and that “inflation measures remain elevated.”
The bottom line: Interest rate hikes – while coming – are likely to be less severe than Greenspan himself implied they would be just a few weeks ago.
“There are clear signs that the pressures are moving from acceleration [of the economy] to the deceleration stage,” says one of the advisers who has Greenspan’s ear.
The betting now is clearly on a quarter-point hike – 25 basis points in banking lingo – in the federal funds rate at the end of this month.
Wall Street had been worrying about a half-point hike just a couple of days ago until Greenspan suddenly went before Congress and seemed to reverse himself on the pace of rate increases.
Before those comments to Congress, some experts had even been speculating about a 75 basis point rate hike after the June 29 and 30 meeting of the Fed’s Open Market Committee.
Now we know at least one of the factors that changed Greenspan’s mind.
The source believes gross domestic product growth will slow to between 2 percent and 3 percent in the third quarter that ends in September.
GDP growth in the first quarter now stands at 4.4 percent but will be revised later this month. Greenspan was also told that inflation is more of a problem than some people think.
“Most of the underlying measures of inflation are not temporary,” was the other pertinent tip passed to Greenspan by the adviser, whose identity I can’t reveal here.
The government reported yesterday that consumer prices rose a troubling 0.6 percent in May, thanks mainly to energy costs.
But without energy and food costs, on a geometrically weighed basis, consumer inflation was a less troublesome 0.2 percent last month.
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More hot stuff could soon come out on Larry Stewart, the disgraced Secret Service ink analyst. I’m told that some very embarrassing personal e-mails exist in which Larry Stewart candidly discusses his participation in the Martha Stewart case while the trial was still going on.
Martha Stewart and Peter Bacanovic recently requested a new trial because the government is now alleging that Larry Stewart, the prosecution’s own witness, lied on the witness stand. The government is expected to rule shortly on the retrial bid.
Stewart and Bacanovic’s attorneys then have the right to amend their new-trial request if something additional – like these e-mails – becomes available.
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A couple of weeks ago, I wrote in this column that an investor named Seymour Holtzman had informed the Securities & Exchange Commission that a partner of his named James Mitarotonda might have traded on inside information in the stock of LQ Corp., which Mitarotonda runs.
Then, a few days later, Holtzman again contacted the SEC and tried to call off the wolves by retracting the charge. But that wasn’t the end of it.
Soon after that column ran, Holtzman resigned from the board of LQ Corp. and sold his stake in that company to Mitarotonda.
Meanwhile, Holtzman’s accusations didn’t help Mitarotonda in his separate proxy battle against Payless ShoeSource, which I’m told he lost handily.
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Corporate profits are expected to be up 20 percent in the second quarter, which ends in less than a month, according to the research firm First Call.
While that might look good, it’s below the average 27.5 percent growth for the S&P 500 in the first quarter. But even the second quarter is looking up.
Two months ago expectations were for just a 14.9 percent gain, or about half that in the first quarter.
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An eagle-eyed source of mine caught this. The very same day that the initial public offering for Genworth Financial was bombing, Morgan Stanley was putting out a very favorable research report on General Electric.
The significance? Morgan was one of the two main underwriters for the Genworth deal, which was being spun off by a probably not-very-happy GE.
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SouthTrust Corp.‘s stock soared yesterday on heavy volume when a rumor spread that the company had pulled out of a conference its executives were supposed to attend. The company wouldn’t comment.
Speculators think this would be significant because they smell a possible takeover. The company’s chairman and major shareholder, Wallace Malone, is thinking of retiring and the sudden shyness is suspicious.