Monday, November 03, 2008


EU markets have taken the lead from the US in letting off on the financial brakes. The spread between the 30-year bund and the 5 year has just jumped. The jump is very similar to the jump that happened in August and September of 2002, just before the markets took off. US spreads have been very high for a few months. The US 10-year to 5-year is as high as it got in June of 2003. These yield curves are forecasting solid economic growth by the first quarter of 2009, 3% real growth or better. By the time the final official reports are posted for the current quarter, the economy should be growing rapidly.

The current bounce will likely prove to be just that, as far as capital goods, energy, and materials go. Financial, consumer cyclical and technology stocks will ride the bounce with "the old stuff" and then will take on off after the next market test. This test will not necessarily be below today's prices.

Since my first post this morning, I went to the St. Louis Federal Reserve website and checked out the monetary base numbers. If one does a "compounded at annual rate transformation" one gets that the Fed is growing money at an annual rate of about 130%! More money is being pumped into the US economy more quickly than ever before! Based on the new slope of the EU yield curve, it appears that the EU bankers are pumping faster than the FOMC! Central bankers are no longer just letting off the brakes, they now have the accelerator pushed to the floor!