>Lawrence, if you don't mind, I would be interested in hearing your current opinions of what you think is on the horizon for both the U.S. bond&equities market and the U.S. economy.
I'm uncomfortable predicting long-term bond rates and equity prices because I don't have any feel for the level of discounting (i.e. wild-ass guessing) in play at any moment in time. However, I will comment on the short-term outlook.
Inflation is caused by too much money chasing too few goods and services, allowing suppliers to gouge you. In the commerce of goods, this is nonexistent (except for housing and stocks). Pricing pressure is extreme, and will remain so in a global economy. Service (60% of the national economy) inflation is moderate, though, and insulated by national barriers. In any case, the aggregate data is equivocal enough that you can argue convincingly for dropping, holding, or raising Fed funds. This is a good thing, really, because the Fed is allowed full flexibility. AG again did a masterful job sitting on his hands, fending off the worries of the pure monetarists, and the money growth situation has basically blown over.
The risks of recession in the U.S. is actually very small. But AG can fix it in a second by dropping interest rates. Again, because the data is so equivocal, he will not be pre-emptive in dropping rates. Personally, (because I don't have the weight of the world on MY shoulders and don't have to deal with the consequences) I think the risks of importing worldwide deflation grows daily, and therefore, a drop is becoming more likely daily. So I tend to think short-term rates will fall a bit before the year is out. Note that this is NOT a prediction on the 30 year bond, however.
Finally, on asset price inflation. Perhaps this is just reflective of the growing international realization that the dollar is the only non-depreciating hard asset anywhere, that world-class American businesses are the only ones that truly know how to make a buck, and that the U S of A is the greatest social experiment in the history of the world. Just a thought.
Note: this in no way implies that Internet stocks are valued correctly. They are in a tremendous mega-bubble. No if, ands, or buts. Anybody that says otherwise is a paid shill. |
