.jpg)
.jpg)
.JPG)
Friday Nov 17, 2006
Soft Landing in Site?
Steven Lord
Dear American Capitalist Reader,
The message from the two inflation gauges reported this week couldn't have been
clearer; inflation pressures within the "pipeline" are receding, and in some cases
are in full retreat. We had predicted as much last spring, and while the inflation
scare isn't over yet, it is clearly on much thinner ground.
The producer price index, released midweek, is the one to which we pay the most
attention. Even taking out the sharp decline in car prices, the 0.1% rate was still far
better than economists were expecting. Which tells you a lot about both the
economy and the economists...
One interesting side note to the economic crosscurrents is that 10-year Treasury
bonds are going down in yield as a result of the good inflation data, and since
mortgage rates are keyed off the 10-year, mortgage rates are not going up as many
people expected. This means the housing bubble's deflation is going to continue in
slow-motion – lower interest rates will mean lower mortgage rates and thus
continued high levels of liquidity in the real estate market. The housing correction
still has some unfinished business, but it will take more time as long as rates
remain low. And when it comes to corrections, the longer they take the less
disruptive they are.
Note, too, that a good portion of Wall Street's current ebullience is related to
falling energy prices. (Remember the predictions for $200 per barrel at this time
last year?) And while lower oil undoubtedly gives the economy some breathing
room, energy will start to rise again by the middle of the winter. The consumer, or
more specifically the consumer's spending behavior through the holidays, remains
the biggest determinant of what the economy looks like around the middle of next
year.
The bottom line: Inflation is reacting quickly to the slower economy, and
pressures are receding. The Fed is now going to begin shifting from an inflation-
containment mode into a growth-protection one. The soft landing is still on track,
and I'm sticking with our prediction of interest rate cuts by the end of the second
quarter.
Sincerely,
Steven Lord
Editor, Trend Investor
P.S. From our travel correspondents, here's a deal you might want to take advantage of.
If you can't, then feel free to forward to a friend or family member.
United Nationwide sale from East Coast
Get a jump on holiday savings! United Airlines just put hundreds of
routes on sale, including many cross-country flights in their "Feast on
fabulous fares" sale. Find low fares for travel through December 25,
2006, but book now before seats sell out.
