Saturday, May 05, 2007

Next Fed Move will be up, not down! Inflation not quelled yet.

After an extended break to see my brother get married in Los Angeles, including a visit down to Sea World and Disneyland, some time away for training, and just a general break, the Confused Capitalist is back.

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The Confused Capitalist has been busy reading the tea leaves, as well as a very interesting book on the process of "intuitive" thinking, and in the Blink of an eye, realized that the Fed will have to move interest rates up, rather than down.

Inflation is not yet quashed, and inflation around the world also appears to be moving towards the upside. A declining US currency won't help things either, as inflation will be "imported" in addition to domestic pressures. The Fed will most likely begin to move rates up in nine to 15 months, and it won't just be 25 basis points until they stop. Where they will stop, I'm not certain, but it will be at least 50 basis before they pause again, but possibly as high as 200 basis points, looking out over the next 24-36 months.

Well, that's my tea leaves reading for this quarter. These days sure feel like the 1970s in many ways.


The Confused Capitalist


Will Rahal said...

PPI has accelerated more than CPI.
Ties up the FED's hands. There are also other negative effects: contraction of the market's PE and the earnings-yield to bond yield ratio tends to work against equities.

AddamBongg said...


Will Rahal said...

Today’s report on CPI came at .4% . PPI(all commodities ) was .9%
In the last few years ,the PPI has been accelerating more rapidly than CPI.

The implication is for an overall stock market P/E contraction.

Ex-Fed Chairman Greenspan’s favorite way of measuring relative valuation
between Stocks and Bond is the Earnings-Yield to Bond-Yield ratio.
This ratio oscillates around one.

When should this ratio be above one?

The answer is: in an environment of PPI relative out-performance to CPI.
That is the environment we are in. This is due to the P/E contraction that
results when the PPI/CPI ratio goes up over time.

To see this behavior historically go to:

Anonymous said...

Writing or speaking in the third person is so...yesterday.

Jay Walker said...

Taking anonymous shots at people is so ... chicken shit ...