The Week in Review

We have seen “surprising” strength in real sector activity this week, US side; and as we witnessed this am, the trend year-over-year rate in inflation is accelerating; that is, moderate price pressures are building, with consumer prices now 3.4% above their year ago level.

Fine, yet where is the typical response from interest rates? Not to be found. Most link this to the quest for sanctuary - world investors in a rush to park in a spot where their VW won’t be swept away by maddened E-Z types.  This is a large part of it; certainly our E-Z friends continue to provide reason to seek cover, including bank funding problems this week.

Yet there is more.

That “more” is partly a Fed on hold, but primarily it would be the growing view among institutional investors that, ok, sure, they missed the relative vigor Q4 (perhaps as they failed to consult Hades Research) but that’s it; the US will succumb. “Can’t any steer weather that storm,” as ‘ol Walt our cowboy used to say, that storm being the next world recession.

Well Walt, you knew your stuff; there’s none that could have taken the licks you took, then got right back in the saddle at 89, back up on your favorite mule. We’ve got a mule right here Walt; just like yours, she’s tough, she’s bent on a vision; she’s indestructible. Those who believe she will succumb are mistaken.

Now then, what does this mean for the desk?  Over the near term it means to set trades at leisure, the US or Canada (piggy back) vs the E-Z zone, Germany included, and unfortunately, even the UK.  It is quite obvious now, not necessarily earlier when Hades first broached the point, that the US will distance this region, and, at an accelerating rate.

Next, we have highlighted the role of the Chinese consumer in providing horsepower over the near to intermediate term. And we can count on that, which when combined with US leadership will prevent another world recession. But over the longer term China will find itself in the role of “drag,” the role of cowboys who the trail boss put in the rear of the cattle drive. A dirty, dusty and dangerous job with few rewards. Some were destined for it - never quite able to learn how to get along with the rest, being rowdy, picking fights, stealing grub or cheating at cards. So eventually is China destined for it.

Robert Craven