May 13, 2005


The data and market reactions over the last couple of days have left me pretty confused. I am focused on the commodity weakness. In March the reason for Fed tightening was the inflation coming through the system and made obvious by the highs being hit in the CRB, oil, copper, steel and too a lesser extent houses. Now the commodity sector has backed off considerably. This could be viewed as evidence that growth is slowing in Asia. It should reduce the need for Fed tightening.

Ditto for the widening of corporate spreads. It was a sign of excess liquidity but now the rising risk premiums have taken that argument off of the table.

The dollar strength evident yesterday should also give the Fed more options.

Throw in a couple of good data points on the economy and the thought that securities markets could be distorted in here by hedge fund troubles and I am having a tough time knowing what to think.

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