Macro Monitor

While the higher Commodity Diffusion Index reading is still far from signaling a significant inflation increase, we do believe that mild upward pressures are building.

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Huge secular bull market in bonds (emerging in 1981) is topping out.

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Expect CPI and PPI to both edge higher in second half of year...could be negative surprise, but not something big.

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Expect CPI and PPI to both edge higher in second half of year...could be negative surprise, but not the start of something big.

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Expect CPI and PPI to both edge higher in second half of year...could be negative surprise, but not the start of something big.

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Near term, bond market may continue to rally as economic reports have become more mixed (less bullish). But long term secular bull market in bonds emerging in 1981 has probably topped out.

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Expect rally from current oversold conditions, but overall, we think secular Bull Market in Bonds is topping out.

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Rally due in Q1 2002, but we think Bull Market in Bonds is topping out.

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Rally due in Q1 2002, but we think Bull Market in Bonds is topping out.

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Bond Market weakness is adjustment to end of Fed easing cycle.

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Bond market adjusting to end of Fed easing cycle, expected 2002 economic recovery and corporate rush to lock in lower borrowing costs.

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Expect further Fed cuts in short rates, but this could do more harm than good.

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Yield curve has risen dramatically in recent weeks, probably forecasting economic recovery ahead (6-12 months?), but also reflecting deteriorating budget surplus situation.

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Economy  may already be halfway or more through recession. GDP growth still barely positive, but revisions could change that. Tech bust magnitude and breadth of Q2 profit plunge spell recession.

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GDP growth still barely positive, but trend has been sharply lower. May already be halfway through a recession. Tech bust and Q2 profit decline additionally support this view.

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Economy may already be halfway through a recession, but expect economic uptick by early 2002. Fed near end of easing.

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Expect Q2 and Q3 GDP to weaken due to business cost cutting, lagging global economy and less robust consumer spending. But, tax rebate, the Fed, and money supply growth should spawn new economic expansion by early 2002.

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Overall inflationary pressures subsiding, but expect a few more energy related flare ups.

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Overall inflationary pressures subsiding, but expect a few more energy related flare ups.

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Bonds still performing better than stocks in 2001, especially Junk Bonds. Commodity Diffusion Index declined sharply to 42%. Historically this is a significant positive for stocks and bonds.

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