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Strategies & Market Trends : Waiting for the big Kahuna

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To: William H Huebl who wrote (1978)	7/4/1997 12:59:00 PM
From: HH	of 94695

Bill, Dont get me into too much of an economic discussion because my comprehension is tenuous at best. However, I see nominal interest rates (30 yr tbonds) actually higher today than they were two years ago. Since that time yields have traded within a band of 7 1/4 and 6 1/2. It's accurate to say that average yields have stayed in the 6.75 range. BUT, subtracting CPI numbers to appreciate "real" rates the tight policy of AG is more apparent. Consumer Price index was up 3.3 % in 1996 and during this year CPI is at 1.4% . That is equivalent to a 1.9% increase in rates. Producer prices have actually fallen for 5 consecutive months and will feed the influence to CPI even more. What this is creating is a very rapid slowdown in GDP. A slowdown in GDP will by definition impact EARNINGS,EARNINGS,EARNINGS. Whether 2 qtr numbers are affected (they almost have to be) will be seen soon. Companies, however, are adept at accounting gymnastics, so some reported numbers may not be immediately affected. It will be interesting to watch AG 's report to Congress and his redefinition of "Irrational Exuberance" HH

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