Thursday, December 01, 2005


Today, Thursday December 1, 2005, is a hot news day. The ECB raised short rates by a quarter point, increasing the cost to carry everything from long bonds to crude oil to gold. Real rates in Europe just went up a notch!

According to results posted by, the US payroll employment numbers are going to be very strong. Number after number, the US economy is showing strength. The Wallmart shopper is alive and well.

One concern commonly expressed is that consumers are being forced to stop using their homes like an ATM machine. At a similar turn in the US economy during 1995, refinancing was much lower than recent numbers and the economy and markets surged.

The US market opened strong today. This would is consistent with moves in Japan and Europe overnight.

The hot news is consistent with a move into the "expansion" phase of the economic recovery; a time when developed nations stocks do well relative to developing nations stocks. Even old line companies such as IBM are making decent moves. Even old (newly named) phone companies like AT&T are doing well.

Businesses are going to carry the economy from here. Consumers will see significant wage increases over the next several years and will continue to spend. Big ticket items that require bank financing may not be so strong but the American worker will continue to travel and spend. Capital spending by business is going to be very strong and business travel is going to be very strong.

On CNBC this morning, Seth Tobias stated that this is the first time in US history that airlines have reduced capacity in a non-recessionary environment. He mentioned that one of the bankruptcy judges ruled yesterday to further decrease capacity. He spoke about the 20% decline in fuel costs and suggested that airlines are a good short-term play. He was right on the money until he suggested that airlines are trading vehicles only.

I had a conversation with a commodities trader from Chicago, I'll read his report and mention his name and attitudes later. The current worldwide commodities boom is interesting. It only takes a drop or two of extra new oil for the marginal price to head down. Most folks see rising oil prices. The self fulfillment of the majority will be the creation of new supply and the destruction of demand. In regard to economic questions, always remember, the majority is always wrong.


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