Macro Monitor

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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Link between Junk bonds and stock market seems to be indicating that stock investors are ignoring factors pushing Junk bond yields higher.

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

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Bond market targets were increased in July, based on rising global rates, strong global economy and expected inflation acceleration.

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Expect economic expansion to pick up a bit after weak first quarter, but a 2008 recession is a possibility. 

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Expect economic expansion to pick up a bit after weak first quarter, but a 2008 recession is a possibility. 

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We know we’re not the only ones to have noticed, but the old economic rules of thumb haven’t been working in the U.S. bond market for some time. 

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Expect economic expansion to slow down in the second half. A 2008 recession is a possibility.

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Since economic fundamentals are providing little help lately, an understanding of bond sentiment has become especially helpful.

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We see little fundamental appeal in bonds at current yield levels, but would not be surprised if yields still drifted a bit lower in the next month or two—if only because so many players are positioned for the opposite.

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Still believe interest rates could be headed higher in 2007. While the economy does seem to be slowing and a recession is a possibility by early 2008, we expect the twelve month rate of inflation to accelerate in the second half of 2007.

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We still believe interest rates are headed higher in 2007. Investors have sought the safety of U.S. Treasuries amid concerns of slowing economic growth and sub-prime jitters, sending ten year T-Note yields to their lowest level since December 2006.

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Inflation pressures have not yet abated and we believe that bond yields could tick up later this year, as those pressures eventually flow through to the CPI. 

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