Justa, Re: Goldilocks Economy... Batman's version:
There is no evidence of inflation
By Joseph V. Battipaglia, CBS.MarketWatch.com
Last Update: 1:34 PM ET Jun 12, 2000
NEW YORK (CBS.MW) -- Last week, Federal Reserve governors Parry,
Gunn and Meyer expressed their view that early signs of moderation may
not be enough to confirm that the economy has entered a period of slower
growth. Maintaining an ever-vigilant posture, the governors continued to
express concern about the threat of possible inflation.
As I have said before, there remains no credible
evidence an inflation problem exists and recent data
on price levels continues to support this. The May
PPI was unchanged with the core rate up a scant
0.2 percent.
It does not surprise me, however, that the board of
governors is not in a self-congratulatory mood. After
all, it is the charter of the group to concern itself principally with attaining
price stability through the appropriate application of monetary policy.
For the foreseeable future, then, expect the board of governors to publicly
express concern while they quietly choose to ease off the monetary tiller.
Remember, the Federal Reserve seldom waives a flag signaling the end of
a period of credit tightening, they simply demonstrate this through the policy
choices they make.
Welcome to the Goldilocks economy
Some years back, the term "Goldilocks economy" was used to describe a
level of growth considered to neither "too hot" nor "too cold." I believe we
are entering into another such period as annualized GDP growth moves
toward a 4 percent annual rate of growth away from the 7.4 percent rate of
growth seen during last year?s fourth quarter.
At the same time, I expect the core rate of inflation
to remain between 2 percent and 3 percent per
annum. In this environment, financial assets --
particularly equities -- should perform. Rising
productivity and unit volume growth will remain the
key formula for earnings growth.
The bond and equity markets have not lost sight of
these favorable conditions. The yield on ten-year
Treasurys has drifted down from over 6.5 percent to
6.2 percent in less than a month and the broad
market, represented by the Wilshire 5000 index, has
advanced 10 percent from its recent intra-day low
on May 24. The Nasdaq composite also is righting
itself from its correction -- returning close to 20
percent from the same starting point.
I continue to forecast 15 percent year-over-year
growth in earnings from S&P 500 companies with
30 percent or more growth in earnings from the
technology sector and the Nasdaq composite where
robust demand from business and consumers
continues unabated. As I said before, it is this
earnings power that will drive equity prices to new
highs as the year progresses.
My year-end forecasts for the major indices remain 12,500 on the Dow
Jones Industrial Average, 1,625 on the S&P 500 and 5,500 on the Nasdaq
composite. My asset and sector allocations also remain unchanged. |
