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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Lee who wrote (1976)	7/21/1999 7:47:00 AM
From: Henry Volquardsen	Read Replies (2) \| Respond to of 3536

Lee, Interesting article. I agree with Mr Makin for the most part, particularly in his analysis of what is happening in Japan. Where I have a few questions is in his conclusions. I'm not denying that the US economy is strong but I am not certain I would call it overheating. Yes unemployment is low but I do remember a time when it was considered that 'full employment' was 4% or lower. Capacity utilization remains in the low 80s. He sees US inflation backing up to 3%. Some day soon maybe but I just don't see it yet. Wage increases are not outstripping productivity gains and commodity prices, with the exception of oil, are low. And I haven't yet given up on by belief that OPEC will eventually start cheating on each other. I do believe we will eventually see rising commodity prices spur renewed inflation but not until we see sustained recoveries in Asia and I don't believe we will see that for at least a year. Where I believe Mr Makin and the Fed may be in agreement that there is some overheating in the US is in equity prices. It has been my impression that one of the Fed's greatest concerns is the development of a US asset bubble similar to the Japanese asset bubble of the 80s. That is not to say they believe current prices represent a bubble, just that continuation of recent trends could accelerate and cause one to develop. I believe the Fed has started its tightening regime more with a view to preventing an asset bubble than as an effort to fight relatively benign inflation. This is why I believe we will see at least one more Fed hike, and perhaps two, in the near term despite the recent very good inflation news. My own view is that long bond yields will go to 6.5% but I won't quibble with 7% <g>. Regards, Henry