Uncle Als Conundrum Part One
The presumption, in this instance, is that that the Fed wouldn’t dare go any further in challenging the growth of the real economy. That means the markets believe that the Fed’s growth fixation won’t allow it to take the federal funds rate back to just a neutral setting —probably somewhere in the 4.25% to 5.0% zone.
From Uncle Al: "slowing productivity growth — together with the pass-through effect of a weaker dollar, high energy prices, and narrowed profit margins — could begin to push inflation higher..."
In the near term, 1st qtr 05 corporate results and economic indicators will bare this out, this will come to pass...but dont be fooled or lulled to sleep by this, much like the complacency being witnessed in todays stock market's with VIX and VXN at an all time low.
The unwind and whipsaw of rates will occur over the 1st qtr, long rates will continue to uptick slowly between now and sometime in March, at which point, long term rates will be back to what they were prior to the squeeze.
An inverting of the yield curve is a possibility, but not a healthy one for the long term.
There are two possibilities, actually three. However, I do not subscribe to the Pollyanna Goldilocks scenario and as such will not address it, oil price, terrorists, finanical crisis, dollar crisis and Murphys Law will rock the boats and spoil the porridge. More on these scenarios in Part Two.
See Conundrum of the Day - Thursday February 17, 2005
http://naybob.blogspot.com/2005/02/conundrum-of-day.html
From Uncle Al: "slowing productivity growth — together with the pass-through effect of a weaker dollar, high energy prices, and narrowed profit margins — could begin to push inflation higher..."
In the near term, 1st qtr 05 corporate results and economic indicators will bare this out, this will come to pass...but dont be fooled or lulled to sleep by this, much like the complacency being witnessed in todays stock market's with VIX and VXN at an all time low.
The unwind and whipsaw of rates will occur over the 1st qtr, long rates will continue to uptick slowly between now and sometime in March, at which point, long term rates will be back to what they were prior to the squeeze.
An inverting of the yield curve is a possibility, but not a healthy one for the long term.
There are two possibilities, actually three. However, I do not subscribe to the Pollyanna Goldilocks scenario and as such will not address it, oil price, terrorists, finanical crisis, dollar crisis and Murphys Law will rock the boats and spoil the porridge. More on these scenarios in Part Two.
See Conundrum of the Day - Thursday February 17, 2005
http://naybob.blogspot.com/2005/02/conundrum-of-day.html
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