It's Still The Economy, Stupid


Thursday, May 13, 2004  

Stirling Newberry writes for BopNews and is an advisor to the Jim Newberry campaign. The opinions expressed here are his own.

When Wall Street looks back at the past, look out. Going around are comparisons to 1994 and to 1974.

The first is the last time the US looked for a "soft landing" in a recovery, the Fed raised interest rates rapidly, and choked off growing commodity inflation. But the Fed knows that it doesn't have the flexibility to do that, as Bush has borrowed every available dime for tax breaks.

In reality it is much better to look at the present factors than to wonder whether we are reliving the past, we never will, because as soon as people think we are, the past will be discounted in, and we are on a different path. The markets - equity and security - are still digesting a basic question: how much of recent improvments in jobs, profits and outlook is just inflation? If a great deal, then the Fed, the Bank of England, the ECB, the BoJ and others will have to tighten dramatically to ease inflation.

But now we get to the prisoners dilemma: no one wants to tighten first, since that will push their currency up, and their economy down. Others would love to have cheaper inputs at the cost of the central bank that tightens. But, on the other hand, the nation that does tighten has a stronger currency, and can then bid up the prices of commodities, sparking inflation, and then leading to another round of "who tightens first?" This is why such moments almost always require an agreement for coordinated action among the major industrialized nations.

posted by Anonymous | 1:10 PM |
 

Stirling Newberry writes for BopNews and is an advisor to the Jim Newberry campaign. The opinions expressed here are his own.

When Wall Street looks back at the past, look out. Going around are comparisons to 1994 and to 1974.

The first is the last time the US looked for a "soft landing" in a recovery, the Fed raised interest rates rapidly, and choked off growing commodity inflation. But the Fed knows that it doesn't have the flexibility to do that, as Bush has borrowed every available dime for tax breaks.

In reality it is much better to look at the present factors than to wonder whether we are reliving the past, we never will, because as soon as people think we are, the past will be discounted in, and we are on a different path. The markets - equity and security - are still digesting a basic question: how much of recent improvments in jobs, profits and outlook is just inflation? If a great deal, then the Fed, the Bank of England, the ECB, the BoJ and others will have to tighten dramatically to ease inflation.

But now we get to the prisoners dilemma: no one wants to tighten first, since that will push their currency up, and their economy down. Others would love to have cheaper inputs at the cost of the central bank that tightens. But, on the other hand, the nation that does tighten has a stronger currency, and can then bid up the prices of commodities, sparking inflation, and then leading to another round of "who tightens first?" This is why such moments almost always require an agreement for coordinated action among the major industrialized nations.

posted by Anonymous | 1:10 PM |
 

Stirling Newberry writes for BopNews and is an advisor to the Jim Newberry campaign. The opinions expressed here are his own.

When Wall Street looks back at the past, look out. Going around are comparisons to 1994 and to 1974.

The first is the last time the US looked for a "soft landing" in a recovery, the Fed raised interest rates rapidly, and choked off growing commodity inflation. But the Fed knows that it doesn't have the flexibility to do that, as Bush has borrowed every available dime for tax breaks.

In reality it is much better to look at the present factors than to wonder whether we are reliving the past, we never will, because as soon as people think we are, the past will be discounted in, and we are on a different path. The markets - equity and security - are still digesting a basic question: how much of recent improvments in jobs, profits and outlook is just inflation? If a great deal, then the Fed, the Bank of England, the ECB, the BoJ and others will have to tighten dramatically to ease inflation.

But now we get to the prisoners dilemma: no one wants to tighten first, since that will push their currency up, and their economy down. Others would love to have cheaper inputs at the cost of the central bank that tightens. But, on the other hand, the nation that does tighten has a stronger currency, and can then bid up the prices of commodities, sparking inflation, and then leading to another round of "who tightens first?" This is why such moments almost always require an agreement for coordinated action among the major industrialized nations.

posted by Anonymous | 1:10 PM |
 

Stirling Newberry writes for BopNews and is an advisor to the Jim Newberry campaign. The opinions expressed here are his own.

When Wall Street looks back at the past, look out. Going around are comparisons to 1994 and to 1974.

The first is the last time the US looked for a "soft landing" in a recovery, the Fed raised interest rates rapidly, and choked off growing commodity inflation. But the Fed knows that it doesn't have the flexibility to do that, as Bush has borrowed every available dime for tax breaks.

In reality it is much better to look at the present factors than to wonder whether we are reliving the past, we never will, because as soon as people think we are, the past will be discounted in, and we are on a different path. The markets - equity and security - are still digesting a basic question: how much of recent improvments in jobs, profits and outlook is just inflation? If a great deal, then the Fed, the Bank of England, the ECB, the BoJ and others will have to tighten dramatically to ease inflation.

But now we get to the prisoners dilemma: no one wants to tighten first, since that will push their currency up, and their economy down. Others would love to have cheaper inputs at the cost of the central bank that tightens. But, on the other hand, the nation that does tighten has a stronger currency, and can then bid up the prices of commodities, sparking inflation, and then leading to another round of "who tightens first?" This is why such moments almost always require an agreement for coordinated action among the major industrialized nations.

posted by Anonymous | 1:10 PM |
 

Stirling Newberry writes for BopNews and is an advisor to the Jim Newberry campaign. The opinions expressed here are his own.

When Wall Street looks back at the past, look out. Going around are comparisons to 1994 and to 1974.

The first is the last time the US looked for a "soft landing" in a recovery, the Fed raised interest rates rapidly, and choked off growing commodity inflation. But the Fed knows that it doesn't have the flexibility to do that, as Bush has borrowed every available dime for tax breaks.

In reality it is much better to look at the present factors than to wonder whether we are reliving the past, we never will, because as soon as people think we are, the past will be discounted in, and we are on a different path. The markets - equity and security - are still digesting a basic question: how much of recent improvments in jobs, profits and outlook is just inflation? If a great deal, then the Fed, the Bank of England, the ECB, the BoJ and others will have to tighten dramatically to ease inflation.

But now we get to the prisoners dilemma: no one wants to tighten first, since that will push their currency up, and their economy down. Others would love to have cheaper inputs at the cost of the central bank that tightens. But, on the other hand, the nation that does tighten has a stronger currency, and can then bid up the prices of commodities, sparking inflation, and then leading to another round of "who tightens first?" This is why such moments almost always require an agreement for coordinated action among the major industrialized nations.

posted by Anonymous | 1:10 PM |
 

Stirling Newberry writes for BopNews and is an advisor to the Jim Newberry campaign. The opinions expressed here are his own.

When Wall Street looks back at the past, look out. Going around are comparisons to 1994 and to 1974.

The first is the last time the US looked for a "soft landing" in a recovery, the Fed raised interest rates rapidly, and choked off growing commodity inflation. But the Fed knows that it doesn't have the flexibility to do that, as Bush has borrowed every available dime for tax breaks.

In reality it is much better to look at the present factors than to wonder whether we are reliving the past, we never will, because as soon as people think we are, the past will be discounted in, and we are on a different path. The markets - equity and security - are still digesting a basic question: how much of recent improvments in jobs, profits and outlook is just inflation? If a great deal, then the Fed, the Bank of England, the ECB, the BoJ and others will have to tighten dramatically to ease inflation.

But now we get to the prisoners dilemma: no one wants to tighten first, since that will push their currency up, and their economy down. Others would love to have cheaper inputs at the cost of the central bank that tightens. But, on the other hand, the nation that does tighten has a stronger currency, and can then bid up the prices of commodities, sparking inflation, and then leading to another round of "who tightens first?" This is why such moments almost always require an agreement for coordinated action among the major industrialized nations.

posted by Anonymous | 1:10 PM |


Monday, May 10, 2004  

Broad sell off on interest rate fears.

Markets reacted negatively to a jobs report which indicates that because the US economy may be overheating, interest rates will rise. Europe off an averate of 1.5%, and the US opens lower. This nexus - between rising inflation and a recovery which is just barely starting - is going to drive the question of risk over the next few months into the summer. If inflation has reignited, and hiring is being driven by inflationary expectations, as it seems is possible - then interest rates will rise sooner, rather than later. This is not good for a heavily leveraged equities market.

Roach has been calling for higher interest rates for sometime, for pushing the Fed Funds rate to 3%. While he is on the inflation hawk side of the spectrum, the general estimates of what a neutral Fed Funds Rate would be range around 2.5% to 3.25%. If inflation reignites early, which the combination of no Fed action and job creation in low productivity sectors would indicate - then that number could easily be 4% by Fall, or 300 basis points.

While the Saudis are calling for higher production, there is little incentive for other OPEC producers to follow the Saudi lead on this, in that demand - lead by China and the US - seems relatively inflexible for the time being. This means that it will be difficult for Bandar to argue for increased production until such time as there is an expectation of price erosion.

Stirling Newberry is an advisor to the Jim Newberry campaign.

posted by Anonymous | 7:08 AM |
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