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THE TODD MARKET TIMER
26861 Trabuco Rd., Ste. E 182, Mission Viejo, California
(September 30, 1997) FINANCIAL INSTRUMENTS: BONDS–“TOUGH GUY” AT THE FED–Let me say it once more. The bond market likes a good economy. More people working and paying taxes takes pressure off social services and helps the budget deficit. It's just that on a very short-term basis, it, like the stock market, thinks that growth is bad. This is why yields are lower now than they were in late 1994 in spite of a strong growth rate.
Why does conventional short wisdom hold that growth is bad? Because of the economic fraternity. For years, they have been teaching that good is bad and bad is good. When you start out with that as your premise, you can come with all kinds of cockeyed theories like NAFTA. In the latter case, they are saying that the trade deficit is no problem. Amazing. A massive transfer of capital is taking place and economists can't see a problem. Could they be saying that less money is better than more money? We wouldn't doubt it a bit, given their horrid record.
At any rate, the print media has been talking about a hard liner at the Fed, Lawrence Meyer. Mr. Meyer seems to be of the school that economic growth causes inflation in spite of seven straight monthly declines in the PPI. He seems to see inflation as being right around the comer. We would love to see how many years he's been singing that tune. Mr. Meyer probably has a Philip's curve strapped to his waist like a six shooter.
Stephen Todd
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