Macro Monitor

A mountain of new debt, a balloon of short term borrowing due near term, and the likelihood of higher interest rates are big hurdles. Moody’s says U.S. debt could test its AAA rating.

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A mountain of new debt, a balloon of short term borrowing due near term, and the likelihood of higher interest rates are big hurdles. Moody’s says U.S. debt could test its AAA rating.

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A mountain of new debt, a balloon of short term borrowing due near term, and the likelihood of higher interest rates are big hurdles. Moody’s says U.S. debt could test its AAA rating.

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We continue to have longer term concerns about U.S. debt and deficit. The mountain of debt is building and interest expense rising.

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Jim Floyd’s analysis of the interest costs facing the U.S. due to the soaring budget deficits.

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The longer term data does suggest that at current interest rate levels, investors can expect sub-par returns over the next 1, 3, and five year timeframes— and we use the term “sub-par” quite literally.

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Get out in front of the lemmings. We expect to ultimately see bond funds reverse now that performance has been lagging the stock market. But where will the money go? Our best guess is that it flows to Emerging Country Equities….once again chasing strong performance.

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High Yield bonds are still rated Attractive, but the spreads have narrowed significantly.

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During the past several years, it has become fashionable to believe that bond investors are more sophisticated than stock investors. Personally we don’t buy that bond investors have any edge in intelligence or diligence.

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Jim Floyd is boosting his 12 month interest rate targets by about 50 basis points across the board. The economy is expected to be showing signs of recovery by year end 2009, and the credit markets are thawing.

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Credit spreads have blown out to levels not seen since the 1930’s. What are the implications for the market?

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There is political pressure to keep inflation low, minimizing COLA (cost of living adjustments) and Social Security costs. Low inflation also helps to keep interest rates down, which keeps government interest payments as low as possible.

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We believe that the CPI understates, not overstates inflation.

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The U.S. economy is slowing and probably fell into recession in Q4 2007

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Optimists have continuously cited low unemployment and the ever resilient U.S. consumer as two “pillars of strength” that will help keep the economy afloat. It has become considerably more difficult to make this case in recent months, as jobs and spending data have weakened to levels associated with recessions.

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We believe that the CPI understates, not overstates inflation. There is political pressure to keep inflation low.

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The notion of a core rate of inflation (excluding Food and Energy) seems to be fading away—finally!

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CPI Accelerating In Q4, Economy Creeping Along, But Expect Recession In 2008

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Expect economy to slow the remainder of 2007 as a result of slower consumer and business spending, as well as housing and auto woes. A 2008 recession is now a stronger possibility. 

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One development that is currently dampening rent hikes is the increasing conversion of condo units to rental units, increasing the overall supply of rentals.

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