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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (8597)	7/1/2004 10:08:02 PM
From: ild	Read Replies (1) \| Respond to of 116555

Flows: Jun 30 Independent Data on Fund Flows & Holdings Equity funds report net cash inflows totaling $3.753 billion in the week ended June 30, with $2.25 billion going to the iShares Russell 2000 Index fund; Non-domestic funds report inflows of $370 million with Europe, Japan, and Asia/Pacific Emerging Markets reporting inflows; Taxable Bond funds report net cash outflows of -$859 million with most coming from Government Bond funds -($530 Mil) and Investment Grade Corporate Bond funds -($407 Mil); High Yield Corporate Bond funds report net inflows of $2.1 million; Money Market funds report outflows of -$48.1 billion, the largest outflows since 10/1/03; Municipal Bond funds report net cash outflows of -$632 million

To: Knighty Tin who wrote (8597)	7/1/2004 10:28:15 PM
From: ild	Respond to of 116555

Comstock Partners, Inc. Series of Rate Hikes? Maybe Not July 01, 2004 The Fed’s quarter-point hike in the fund’s rate was the most telegraphed move in history, and the statement contained no surprises. The Committee kept its “measured pace” statement, but threw a bone to the inflation alarmists by saying it would be more aggressive if necessary. All this means is that the Fed will follow the incoming data rather than being pinned down by any promises of future action, but this has always been the case with the possible exception of the Fed’s previous virtual promise of an indefinite period of one percent rates. That policy was a desperate effort to get the economy and markets moving after the bursting of the late 1990s bubble. In our view, however, the markets are mistaken in thinking that this is the first of a series of rate hikes back to a so-called normal 3-to-5 percent. Even as the rate increase was being implemented there are numerous signs that the economy is already softening and that the rise of inflation is slowing. Over the past few weeks we have seen some softening in an array of items such as durable goods orders, jobless claims, first quarter GDP, the ECRI leading index, vehicle sales, German and Italian business confidence, the Chinese economy, the Business Week production index, chain store sales, Wal-Mart, Target and the ISM manufacturing index. ISM new orders have been down for six consecutive months and production for two months. New unemployment claims have started to rise while its four-week moving average has trended higher for the last few weeks. The economy may very well be reacting to the end of the tax refunds and the 80 percent plunge in mortgage refinancing cash-outs even before the interest rate hikes have a chance to bite. In addition a number of key commodity prices are already well off their peaks. These include copper, gold, silver, aluminum, lumber, DRAMS, wheat, soybeans, corn and cotton. The Baltic Freight index, a sensitive measure of shipping, is also down sharply. Even energy prices would be significantly lower if not for terrorist attempts to target oil facilities. We’re aware that prices for many items have turned up, and that we may get a couple of upward surprises in the CPI. If, as we suspect, the economy is softening, and commodity prices are turning down, the CPI rise is likely to be temporary, and deflation will again become a concern. This is particularly so since we believe that the economic recovery is too fragile to survive any rise in interest rates. Instead of a series of rate rises, an August hike could be the last. Since the great inflation of the early 1980s every spike in prices has topped out at a lower rate of increase, and the same is likely on the current cycle. If this happens and the CPI rate of increase tops out at say 3 percent or so, the next recession can carry can carry prices into dangerous deflationary territory. If we are wrong, a stronger economy will cause more inflation and a far higher increase in rates than anyone now envisions. In this case the rate increase would not be “measured”. In sum, we would give a two-thirds chance to deflation and a one-third chance to inflation, with deflation still following as the massive record debt implodes. Either way, the stock market cannot win. comstockfunds.com