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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Monday, December 24, 2007

Economic Indicators

The weekly leading economic indicators have been trending
down since July, and have fallen enough below those peaks
to move the economic expansion light from green to amber.
This is a tricky situation, since we had similar moves in
1987 and 1998 without a resulting downturn. Those two periods
were ones of financial crisis, but matters did settle out
favorably for the US economy. Such could well happen this time
too, but there has been enough damage to the readings to
warrant more concern.

The inflation thrust indicator has been flat over the past
month, but it remains in a strong uptrend, paced by oil and
basic agriculturals. The CPI inflation of 4.3% yr/yr through
November wiped out the growth in the average wage, and
the increase of inflation pressure has damaged the economy
as a result. Rising deliquencies on consumer credit cards is
likely also a result of faster inflation. Consumers have
probably been a little slow to re-work budget priorities with
the rises in energy and grocery bills.

The longer term economic indicators have turned from negative
to mixed. Real M-1 growth is still negative, the real wage is
under pressure and the real price of oil remains in an uptrend.
Positively, the Fed is stepping up liquidity infusion, at least
for the short run, and short rates are trending down. I might
add that despite the bevy of negative headlines, the banking
system is functioning and growing.

Since I am a growth freak, I have my fingers crossed.

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