Wednesday, May 18, 2005

The Weight of the Evidence

The view from Comstock partners is pretty bleak. These old pros see recession ahead.

The core reason for their bearishness seems to be the policy of the fed and, primarily, the slow growth of money supply. The article sites correlation coefficients for money slow down and recession that are relatively weak indicators.

The fact is that the fed provided necessary stimulation after September 11. It took a very liberal money policy to keep the US out of a depression. Money supply was plentiful but in the environment of the time the velocity of money slowed. Re-priming the pump has been a tricky task and Greenspan has done the job like the pro that he is. After success was reached and for the past eight months, the fed has gradually removed the stimulus. Naturally money growth has slowed.

Assuming a recession from here assumes the fed continues to raise short rates--regardless of the need. My money is on Greenspan to make the right choice. He catches criticism from both sides, but the attitudes and actions of millions of consumers determine final demand. The economy will always over-shoot or under-shoot at extremes but we are not currently close to an extreme. We have half the whiners worrying over inflation and the other half worrying over recession.

BUY THE BIG BULL BOOM BUBBLE BEFOR THE FROG BOILS OR JUMPS OUT OF THE POT!

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