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

To: Jon Koplik who wrote (7175)	7/31/2005 1:10:26 AM
From: Jon Koplik	Respond to of 33421

Barrons / Bank Credit Analyst guy / low inflation .......................... Barron's MONDAY, AUGUST 1, 2005 Welcome to Low Returns Interview with Martin Barnes, Economist, BCA Research By SANDRA WARD A LOW-INFLATION, LOW-RETURN WORLD sounds rather dull to us, but to the highly regarded economist at Montreal's BCA Research, these are "strange" and "fascinating" times. Strange, because despite so many inflationary pressures, the good times continue, according to Martin Barnes, who is also the managing editor of the equally acclaimed Bank Credit Analyst report on investing and business trends. Fascinating, because it seems the economy can keep moving at a decent clip for the foreseeable future. As for low returns, get used to it. We'll let him explain. (lots of stuff I am not copying here ...) What's your view on inflation ? Inflation is going to be low for the foreseeable future. The global savings-investment backdrop is going to be in place for some time, and that's not going to push up yields. There would be an issue if people lost confidence in the long run or started demanding higher risk premiums for investing in long-term securities. Why do you see inflation staying low ? Yeah, we've had the almost perfect conditions for inflation in the last few years. The Fed has run a very stimulative monetary policy. We have run big budget deficits. We have driven the dollar down. To top it off, oil prices are up. We've had the perfect inflationary mix, and yet we haven't really had any inflation despite that. If you look around the world, there is no evidence of inflation at all. China is perhaps the best place to prove it. Here is a country that has been growing at 9% to 10% and effectively adopted U.S. monetary policy by pegging its currency to the dollar. Yet there is no inflation in China at all. In fact, there is deflation, and that tells you there is something very powerful going on there in terms of a supply-side boom. In the U.S., there are tough competitive conditions. And the Internet and technology in general is still a very powerful force for disinflation. There are pockets of inflation, but the overall picture isn't all that bad. The Fed's view is there is still a problem. They are worried about labor costs going up. But a lot of the inflation indicators we look at are rolling over. Producer prices are easing. If the economy was [he is supposed to know to say : "were"] to continue growing really strongly here, at a 4% clip for the next year, of course, there would be pressures on resources and the unemployment rate would fall and wages would go up. But that's not likely. The economy is going to do OK -- but I don't see it growing much above trend over the next year. (more of interview ...) Copyright © 2005 Dow Jones & Company, Inc. All Rights Reserved.