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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (3976)	6/3/2001 6:04:46 PM
From: Raymond Duray	Read Replies (2) \| Respond to of 33421

Mrs. Peel, WRT demographics, we are in a significantly different situation here in the US compared to Japan. The immigration situation is night and day. So to speak, while Japan remains extremely xenophobic and mono-cultural, the US enjoys terrific influxes of immigration of some of the best minds in the world. While there are problems associated with illegal immigration, we are surpassing the Japanese both in fertility rates and in net influx of immigrants. So, I don't see us headed down the same path as the Japanese, except inasmuch as the US will not totally escape the demographic shift to an older worker population and the burden of old age pensions. Both of which are not at a crisis stage at present, nor should we expect that we won't be able to accomodate the baby-boomers in their later years. However, I do believe that the present generation of retirees will be noted as having achieved the highest level of social beneficence of any before or since. My own personal bias is that this was a largely misguided grab for wealth that has achieved the goal of impoverishing younger generations in ways that the young simply don't comprehend yet, (courtesy of an educational system that fails to deal with the real world as much as possible). All the way from student loan burdens and onerous tuitions for higher education to higher than necessary home prices and mortgages. All for the sake of pampering the most pampered generation that America has ever produced. The Uber-Geezers. And do you see a similar situation wrt the interest rate scenario beginning to play out in the US... I have no crystal ball regarding interest rates. Clearly, the FRB wants them lower so that the general economy doesn't fall off a cliff, following the manufacturing sector which clearly is in recession. The bond market is somewhat skeptical of this effort and has been putting up the long bond over the past few months, so, the jury is out on this one. Lower interest rates are good for the likes of John Chambers, and maybe what's good for Cisco is good for America. But, lower rates are also good for the other, more mundane exporters, so the question is this: Do the Bushie's care about export manufacturers? I tend to doubt it. After all, the name of the game in the Administration is dealing with (and in) the energy markets, which are certainly not export oriented. Since the thrust currently is for energy to cost more and not less for the forseeable future, I'm in the camp that says that the long bond market will view this with quite a bit of trepidation as regards the rippling effect of higher energy costs on the general inflation rate. Thus, one thing that is crystal clear to me is that the yield curve will steepen, with the gap between the short duration bill rate and the 10 and 30 year bond rate probably expanding by 200 basis points by the end of the year. And that's my story and I'm stickin' to it. Until something comes along to change my mind. <smile> Best, Ray

To: MulhollandDrive who wrote (3976)	6/5/2001 12:27:22 PM
From: John Pitera	Read Replies (3) \| Respond to of 33421

Mrs. Peel, the Productivity Growth takes a big hit today......building on the "Productivity Myth" idea that Morgan Stanley's Stephen Roach and Pimco's Bill Gross have been talking about. -------------- Tuesday June 5, 10:11 am Eastern Time Productivity in Steepest Fall Since 1993 By Mark Egan WASHINGTON (Reuters) - The productivity of U.S. workers logged its sharpest fall in eight years during the first three months of the year while signs of wage pressure emerged with the largest gain in labor costs in more than a decade, the government said on Tuesday. The Labor Department said the productivity of workers outside the farm sector fell at an annual rate of 1.2 percent during the first three months of the year. That was much weaker than Labor's previous estimate of a 0.1 percent decline and followed a gain of 2 percent seen during the final three months of last year. Unit labor costs -- a key gauge of inflation pressures -- soared at a 6.3 percent annual pace after a 4.5 percent advance during the last three months of last year. The increase in labor costs was greater than the government's earlier estimate that they rose at a 5.2 percent annual pace in the January to March period, and marked the largest gain since a 6.8 percent advance in the last three months of 1990. The report highlights a conundrum facing the Federal Reserve at its next interest-rate setting meeting at the end of this month. While the slump in productivity argues for further aggressive cuts in interest rates to foster economic growth, the potential for inflation implied by rising labor costs argues for a more cautious approach. Productivity, measuring the amount of goods and services workers produce per hour, is crucial to rising living standards but has fallen steadily in recent quarters. When workers' productivity grows, companies can produce more while holding down costs. The first-quarter decline in productivity was the steepest falloff since a 5.0 percent slump during the first three months of 1993. ``Productivity has been one of the centerpieces of the whole New Economy gains that we saw over the last couple of years with respect to being able to have strong growth and low inflation, so the drop in productivity deepens ... anxiety that the strong growth-low inflation scenario won't be as dominant a trend as it has been in recent years,'' said Kim Rupert, senior economist at Standard & Poor's MMS. But many economists believe the productivity downturn is just a cyclical dip that will reverse as soon as economic growth picks up. Still, they find the surge in unit labor costs troubling. ``There is some concern,'' said Michael Swanson, senior economist at Wells Fargo bank in Minneapolis. ``You just can't see that kind of wage increases without productivity and not see it reflected in the price of goods and services later on.'' The numbers were broadly in line with Wall Street expectations. Economists polled by Reuters had forecast productivity would fall by 0.8 percent and unit labor costs would rise by 6 percent in the first three months of the year. The data caused medium to long-dated Treasuries to soften slightly while short-dated issues were little changed. Stocks opened modestly higher.