Nov 12, 2004

Morning thoughts

The retail sales number came in with a good headline, but may be weaker than it looks because gas sales accounted for the unexpected growth. It is still a good number and coupled with Dell's earnings last night the nit picking will probably be ignored. I am surprised that yields are staying low (with the dollar) in the face of economic good news for the U.S. It is difficult to reconcile with the rampant bullishness in stocks. Over the next 3-6 months I think the stock market will be proven right.

Their was a surprise Korean rate cut yesterday, and people are taking it (in conjunction with comments out of Europe and Japan) as an indication that a round of competitive currency devaluation is underway. If this were the case you want to own commodities and basically try to short the next country that will cut rates. I am not sure I agree with this. The U.S. definitely does not seem in the mood to compete on currency so if other countries are the dollar should be rallying. Politicians can not help but comment on rapid currency moves or new highs (the Euro) but it rarely translates into action. A lot of people are long commodities and have been preaching this competitive devaluation (printing money) stuff for years and I tend to see their thoughts as wishful thinking. The Fed's comments on Wednesday and over the last year have indicated that they don't see a lower dollar as necessary to growth and generally are skeptical of any meaningful economic benefit to managing the currency.

This morning CNBC mentioned that people are now looking to positive benefits because of tax reform in the U.S. as cause for an equity rally. With any such policy change the devil will be in details and there will almost certainly be some losers as well as winners. If it improves transparency and efficiency it would be bullish but why is the dollar ignoring the possibility? I am all for tax reform and anything else that saves me time and effort but history has proven that though it should be a simple thing, nothing in politics ever is.

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