I don't have much time to answer you right now, but the CRB has obviously been going ballistic since putting in a massive multi-year double bottom in early 1999 and again in late 2001. Yet, the bond market doesn't seem to "flinch" because it still sees slack in the labor markets. This unused capacity, combined with enhanced labor productivity and tons of outsourcing to low cost labor markets like India and China has obviously been keeping inflation tame. Moreover, the effects of the large tax cuts will peak in 2004 and become a fiscal drag by 2005, while benefits of the boom in mortgage refinancing have already begun to dissipate. Hope this gives you a bit of an answer. Have a Great Weekend!
You need to learn how to read a lot more carefully my friend, since my reply to shfly was in regards to his question to me in a previous post on Page 10 as to why I think that the bond market continues to ignore the strength in the CRB, and not why the CRB has rallied.
Global Deflation is a bigger worry than inflation. There is excess capacity in USA so no pricing power. Excess capacity in China, which further depresses prices. What happened in US couple of years ago in terms huge build up in capacity in technology and other sector is happening currently in China.
I think this will be the signal issue over the next few years. We have all the ingredients in the mix for some eye-popping inflation, yet in fact there has been very little. What there has been is in service areas like health care that are insulated from foreign competition. It is the accepted wisdom that rates absolutely must rise, soon and by large amounts. Of course people were saying that this time last year, and the year before. What will happen? Who knows? Will the China factor keep a lid on domestic prices? Will the vast liquidty poured into the system ignite inflation? Are we making the same guns and butter mistake that LBJ made in the '60's and will the outcome be the same? Without data showing inflation, the Fed will be hard-pressed to justify a rate rise. Unless employment shows significant jumps, they will be even more reluctant to bump rates.
Any rate increase at this stage will be catastrophic. What is needed is Europe to lower rates and Japan to do something about its economy. Demand needs to be stimulated. Single biggest problem for US economy is excess capacity. What happened few years ago has built significant capacity, capital was so cheap and abundantly available. That is why job growth is not happening, outsourcing is not the problem ( but it has become such an emotional issue that you just can not even argue about it rationally) What do you do in such circumstances 1 lower interest rate 2 Deficit financing and 3 Cheapen your currency. All three the US has done. Without that there would have been significant unemployment and severe recession.
Meanwhile, as CISCO CEO John Chambers mentioned in the most recent quarterly earnings call, he is a bit puzzled as to why Corporate America has still yet to step up to the plate, especially at this stage in the economic cycle, and spend money on capital goods and IT. Hmmmmm.....
With regards to unemployment levels, it has been said that we were actually running below our natural rate of unemployment through the late 1990's by about 1%. In an article in a recent issue of The Economist, the author mentioned that the level of jobs being lost overseas isn't actually that alarming. He insisted that the jobs lost at home were cyclical in nature. I think he's half correct. The level of job outsourcing isn't too alarming. But his insistance on cyclical job loss is incorrect; the losses have been much more structural as we are seeing more white-collar jobs sent to places like India. Relative to the 1990's our job situation looks a little disheartening; taken in a broader context, it looks more like an adjustment from irrational times. With regards to the VIX, I think Waggie is right on saying the number is somewhat irrelevant. I tend to look more at the rate of change of the VIX. Sometimes people forget to look at the broader picture. A VIX in the 30's (or in that area) was kind of a freak occurance.
The pc ratio is at 0.72. I have devised a stop&reverse system on daily timeframe that, optimized on most stock indices, says to go long with the pc ratio at > 0.7 and short at < 0.6. It's not much, but it's one more indicator that says to go short, besides the extreme levels of vix, and the reversal candlestick patterns (shooting stars and gravestone dojis - http://www.daytradersbulletin.com/html/cs35.html and http://www.daytradersbulletin.com/html/cs19.html ) that appeared on European Indices yesterday.