Friday, June 03, 2005

The Big Picture: NonFarm Payrolls: 78,000 new jobs

The Big Picture: NonFarm Payrolls: 78,000 new jobs

A month or so ago, I gave Barry credit for having the wisdom to quickly switch from bear to bull once this rally got underway. Today, I must agree with his basic forecast in regard to the rest of this business cycle. My big fuss with him is the likely length of the final leg. After the bond market rally in 1986, the cycle was almost four years long it just happened to have a crash in the middle. After the rally of 1995, the cycle was relatively smooth until the big blow off at the end. This cycle is likely to perform in-between those extremes.

Barry suggest that "the present Bull is set up for the last leg up between now and the end of the year. But the final move--often a wicked rally--sets up the denouement". I agree that the Bull is set up for the last leg. However, for one thing and end to the bull near the off-year congressional election does not fit the election year cycle at all. The election year cycle is very dependable if you do not try to make it precise. One of the things the cycle says is that stocks will be higher at some point during the presidential election year than they were in the off year congressional election year.

All the buzz is about the FOMC stopping now or continuing the rise in short rates. The evidence mounts that the FOMC should pause a month or two before raising another quarter. It is very possible that the FOMC could tweak the rates several more times on the way through the expansion. In other words, it is very possible that during the middle of the Presidential campaign in two years, the market could be near an all time high and short rates could be up 100 to 200 basis points without killing the economy.