run away bride......

May 3,2005

James


Will the FED start to single it is winding down it’s interest rate increases. The continued good performance of utility stocks would suggest the end of the rate raise is in sight and perhaps inflation is much tamer than we all have been led to believe. Utilities historical have traded well in a declining interest rate or flat interest rate environments. The pundit’s continue to be wrong on every issue. The current thinking is “how can the FED curb raising inflation in a slowing economy with out slowing the economy further”. My view is vastly different, the current slow down is more seasonal than fundamental. The summer brings us longer days, baseball, golf, lots of vacations, BBQ’s and good times with friends and family. There is always, I repeat always a bit of and economic slowdown during the spring and summer months because individuals and businesses enjoy the weather and put off major purchases till the fall. The annalists and the pundit’s seize on the summer doldrums as proof of our of our very destruction, speculating that the fall of western civilization is upon us do to out decadent lifestyle, but alas the season changes and the economic cycle will breed anew. The second issue of growing inflation is simply nonsense. What’s interesting is that the dollar is now rising against most major currencies; inflation would have the entirely opposite effect. As I have said be for the FED flooded the US economy with liquidity in an attempt to avoid a great depression style deflationary spiral. As the fears of deflation have abated the FED began to tighten up the reins. What you’re seeing is the liquidity bubbling up into the economy causing the inflation rate to go from negative to a slight positive. The inflation rate remains low and if not for higher energy prices the rate would be almost nonexistent. Forget all this ridiculous talk of stagflation. For those of you lucky enough not to remember stagflation was a economic period in the late 1970’s during the Carter Administration .Inflation and interest rates were in the 20% level, unemployment was climbing to well over the current levels at 7.7%, GDP growth was under 1% .Basically there was no growth and very high inflation and high unemployment, a very different story from today’s GDP growth rate of 3.1%, barley 3% interest rates and 5.4% unemployment.


James