DAILY UPDATE (December 26th: Some Thoughts on the Stock Market [Commentary No. 980a], Posted).

• MARKETS: U.S. Stock Market Selling Could Be Far from Over. Brief Commentary No. 980a (Dec 26) reviews some of the key conditions behind recent heavy selling of U.S. equities. ShadowStats contends that Federal Reserve tightening policies of the last year--raising interest rates--have triggered a nascent U.S. recession. Despite that, recent FOMC comments have promised further rate hikes in the year ahead.

While those circumstances likely served as the proximal trigger of the early stock market rout, any Fed backing off now of those policies should trigger heavy selling of the U.S. dollar, and buying of precious metals, placing the Fed in an unwanted conundrum of its own creation. As we go to press at about 3pm ET on December 26th, the markets are deceptively strong and stable. Updates will follow as needed. Following are earlier, related comments.

FOMC Fumbled, Boosting Rates and Promising Further Rate Hikes, While Liquidity-Starved Consumer Activity Already Suggests a New Recession. The Fed’s Federal Open Market Committee (FOMC) raised its targeted federal funds rate on December 19th by another 0.25%, with promises of more to come in 2019, despite some earlier hints of concern as to slowing economic activity (see detail Commentary No. 979 and in ShadowStats Hyperinflation Watch No. 4).

Those FOMC actions only will intensify consumer liquidity problems, which increasingly will pummel the domestic economy (see the comments in ShadowStats Consumer Liquidity Watch No. 5). The faltering economy ultimately will push the Fed into reversing its tightening policies, once banking-system liquidity is squeezed anew. That circumstance should hit the U.S. dollar and related financial markets hard. The ShadowStats ALERT, updated and reviewed in Hyperinflation Watch No. 4, remains in play, without any revision as a result of the most-recent Fed actions.

Consider still-unresolved systemic instabilities from the 2008 bailout of the global banking system; heavily inflated equity prices; current Fed tightening and a related, unfolding U.S. recession; rapidly deteriorating, uncontained and unsustainable U.S. fiscal deficits; and exploding risks of political instability in the United States and among major U.S. trading partners and allies.

In particular, watch out for weakness and instability in the U.S. Dollar, and for spiking gold prices. The dollar and precious metals serve as the Canary in the Coal Mine for the domestic stock and bond markets.

• PENDING SHADOWSTATS POSTINGS: Commentary No. 980b (Dec 28) will review Retail Sales, Industrial Production, Residential Construction, Home Sales and more. Commentary No. 981 (Dec 30) will cover New Orders for Durable Goods, GDP revisions and a year-end wrap up with a review of some Federal Reserve and financial-market issues. Posting dates here are targets, subject to revision as underlying circumstances evolve. Actual Commentary postings are advised by coincident e-mails to subscribers.

Upon release of a given economic series, headline details and initial ShadowStats observations are posted in the LATEST ECONOMIC RELEASES section, usually within two hours of the official data publication.

• LATEST ECONOMIC RELEASES: (Dec 21) Third-Quarter 2018 Gross Domestic Product (GDP), Second Revision (Bureau of Economic Analysis). Third-quarter annualized real GDP growth revised lower to 3.36%, from 3.50% in both its first and second estimates, versus 4.16% in 2q2018. Despite a consensus outlook for no net revision, that downside revision had been indicated by earlier-month revisions accompanying November Retail Sales and Industrial Production. Increasingly severe consumer liquidity problems were reflected in further downside revisions to residential investment and motor vehicle sales. Given the upside revision to inventories, Final Sales (GDP minus Inventory Change) revised lower to an annualized 1.03% from 1.23%.

Growth in the broadest National Income measure Gross National Product (GNP), which is GDP net of trade in Factor Income (interest and dividend payments), revised lower to 3.05% from 3.49%, versus 4.04% in 2q2018, in the context of revised, increased deterioration in Net Exports.

Third-quarter growth in the less-stable Gross Domestic Income (GDI), the theoretical income-side equivalent of the consumption-side GDP, revised higher to 4.26% from 4.03%, versus 0.87% in 2q2018.

(Dec 21) November New Orders for Durable Goods (Census Bureau). Aggregate New Orders in nominal terms, before inflation adjustment, and before consideration for extreme, irregular volatility in Commercial Aircraft orders, rose in the month by a weaker than expected 0.76%. Net of related monthly PPI inflation, that was a real gain of 0.64%. Net of irregular Commercial Aircraft orders, that was a nominal monthly gain of 0.52%, a real gain of 0.41%. Suggestive of intensifying consumer-liquidity pressures, seasonally-adjusted November nominal new orders and shipments of motor vehicles declined month-to-month respectively by -0.2% and -0.3%.

• PENDING ECONOMIC RELEASES: (Dec 27, 10:00 am ET) November 2018 New-Home Sales. Again, summary analyses should be posted here within two hours of the headline reporting.

• EARLIER RELEASES are reviewed in the Latest Commentaries either in the full text or pending coverage, with summary headlines posted here in the left-hand column.

Click on the Alternate Data tab above, or on the mini-graph below, for coverage of ShadowStats Alternate Estimates of Inflation, Unemployment and the GDP, as well as headline Money Supply (including the ShadowStats Ongoing M3 estimate) and the exclusive Financial-Weighted U.S. Dollar.

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