Macro Monitor

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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Strong mutual fund inflows in January helped propel High Yield bond returns up 7% for the month. Yield spreads narrowed significantly relative to Quality Corporates but remain very attractive.

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U.S economy weakening faster than expected: Global economy also slowing. Increasing odds of a hard landing in 2001.

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Overall inflationary pressures subsiding, but expect some energy related flair-ups.

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U.S. economy losing momentum, global economy slowing more…..Increasing odds of recession in 2001, as banks tighten credit, energy costs remain high, and technology falters.

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U.S. economy still has considerable momentum, but see signs of a slowdown ahead...Increasing odds of a recession in 2001, as banks tighten credit, energy costs remain high, and technology stocks falter.

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The U.S. economy still has considerable momentum, but there are now more signs of a slowdown ahead. Global economy is slowing down even more.

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Economy still has considerable momentum, but there are signs of a slowdown in the second half. Still expect further Fed tightening. Expect inflation rates of change to soon peak, then cool off in Q4.

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· Still expect one more rate hike due to rekindling of stock market enthusiasm, prospects of accelerating inflation, and reported wage inflation numbers understated.

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