To: James Strauss who wrote (19103 ) 7/30/1998 3:30:00 AM From: IQBAL LATIF Read Replies (4) | Respond to
GDP is slowing from 5% last quarter growth to may be 3%-- the pace of corporate profit increases it is said cannot be continued but for me GDP or unemployment or money growth or consumer confidence does not give me the full picture, I am driven by one fact why do we have real interest rates perched so high up? If one go back to the chart and deduct nominal rates from the level of inflation we have US with highest real rates within OECD countries. Now markets have been applying the monetary tightening without even Fed interfering. These longterm rates are free from all controls and are better indicator of how market perceives the economy. May be it is money supply growth or may be the reasons that some in Fed are dissenting but sensing all that market has not allowed the resistance of 5.50% to be taken out, if we would take out that resistance we would have seen a inverted yield curve signalling expectations of falling prices, the market sensing this have seen a correction but I would like to see that short term rates are dropped so that US corporates profit visibility gets brighter as real rates fall and normal looking yield curve shifts lower. The next leg in the equity markets is dependent on that dropping of real rates which have been too high.
