Jay - yes, something funny is going on - more than ususal.
1) FED is stepping on the gas HARD, may have 50 bp cut soon.
2) FED is very likely buying 10 year bonds already - 10 year was at 3.09 % today !
3) Business in the US is mixed - New York area picking up, other areas flat. Look at the retailers: some doing better, some worse than last year.
My analogy - the economy was running on 3 of 8 cylinders for 2002. Now it's running on 4 of 8 - but some of the cylinders are not the same ones...by fall we will be running on 7 of eight or stalled out.
4) We have money supply, fiscal stimulation, lower dollar, and big tax cuts all hitting hard at once - and more tax cuts in the pipeline. This is fighting state government deficits and cutbacks, and a soft job market. The forces of stimmulation will win, even if Easy AL has to order B-52s to drop tons money on state capitols...
5) My expectation is that the US economy recovers and keeps getting better all the way past the November 2004 election and into early 2005.
6) I think we will have brief inflation, countered by some strong deflationary forces - internet pricing knowledge, outsourcing of both goods and service to developing countries, expanding world trade, lower oil prices, and after about 2006, lower defense budgets in the US.
So this is the cusp, the change in direction. What do we buy in a growing world economy ? The natural and obvious trades are not obvious yet.
We know that US interest rates will go up again - but they are going down now, and have not bottomed yet.
The interest rates are too close to the bottom to go long on US bonds now, and going the wrong way to short bonds. So there is no obvious (new) trade at this time.
We may be facing a very hard task - waiting to see the trend start. |
