3 April 2007 – The Aleph Blog

The Pips Are Squeaking

Posted on 3 April 2007 by David Merkel

Around the world, broad measures of money are moving higher as goods price inflation moves higher.? China and India come to mind here.? Economic liberalization has brought benefits for both the nations that liberalized, and those that trade with them.

As such, tightening measures by developing country central banks are to be expected.? As an example consider this article by Andy Mukherjee of Bloomberg.? There’s a lot of excess credit out there, and central banks are half-heartedly trying to extinguish it.

Goods price inflation is moving higher globally, and global short rates are rising as a result.? When do we hit the tipping point, and what nations/sectors will have the worst of it once deflation or stagflation takes hold?? I’m not sure, but those that are running a current account surplus should do better.

Update on Indicators, Part 2

Posted on 3 April 20073 April 2007 by David Merkel

I should mention that Assurant has been added to the S&P 500. Could not happen to a more deserving company; they are truly innovators in the insurance industry.

And now, more on indicators, bullish, bearish, and otherwise:

Bullish

Low quality stocks outperformed in the first quarter, according to Merrill Lynch. That’s bullish in the short run, but not the intermediate term.
LBO volume and private equity volume continue unabated.

Bearish

Economy feels like stagflation-lite. Low positive growth, and rising inflation.
Inflation is rising globally, particularly in India and China.
Mortgage interest payments in the US are a record high (since 1989) compared to Disposable Personal Income.
Corporate credit metrics are deteriorating for both junk and high grade corporate debt, but are not critical yet.
Equity REITs seem to be rolling over.

That’s all for now. Tomorrow is another day.
Full Disclosure: long AIZ