Thursday, December 15, 2005

Bond Report: Treasurys fall as factory, investment data trump CPI - Banks - Financial - Financial Services - Bond Market - Currencies - Economy

What do you make of a strong economy and weak inflation?

The market continues to have a hard time figuring out the current economic climate. It is funny that just a few months ago some folks were writing about the risk of stagflation; the opposite situation exists. The inflation report this morning showed again that inflation is very tame. Yet, the NY index showed industrial production is very strong. The market has long tended to respond to extra good news with a knee jerk counter move. You know the old saws, "buy on bad news sell on good" or "buy the rumor, sell the news". The news is so good the market does not know what to make of it.

This year will be the first year in the history of the FDIC that a bank did not file bankruptcy. This year is the third year in a row of double digit profit growth. This year is yet another year in a decade of extraordinary productivity growth.

The old dead horses, being beat by those who are politically opposed to George Bush, are starting to stink up the place badly. The argument that the tax cuts only benefited the rich is hard to continue. It flies in the face of sharp increases in compensation, sharp increases in average family net worth and steady increases in standards of living. Good jobs are available. Unemployment is low. Balance sheets are in great shape.

A capital spending BOOM is about to get underway. The number of wireless routers, Skype telephones, servers, fiber optic cables and other electronic gadgets that will be purchased in the next 5 years is going to make the 90's boom look like a mole hill.

When the news is too good, such as when all the factories are running at full capacity, it turns out to be bad news for interest rates and inflation. The current economy is not over-heated, but companies are making money and expanding at a moderate pace. Life is good.