An update to an oft-featured chart. In the 12 months ended Feb. '10, Japanese industrial production rose 31%! U.S. industrial production is up 6% from its June '09 low, and has risen at a 6% annual rate in the past six months. Eurozone industrial production is up at a 11.5% annual rate in the six months ended Feb. '10. While the U.S. seems like the laggard based on these numbers, it is also the case that production never fell as much here as it did there. Taken together, these numbers all point to a substantial recovery from recession lows. All signs point to a continued global recovery, and that means more good news in the months to come.
Scott,
ReplyDeleteThe biggest future risk factor are rates/FED.
As I expect FED changing rhetoric(extended period) in June, and risk trade slowed around such a events in the past, do you see any chance that this time could be different. I can imagine f.i. FED clearly showing that the rates rise path will be extremely cautious, or even very conditional and in extended (so new extended) period of time. So the risk rally may continue despite the change.
Some observations: everyone has been concerned about a Fed tightening for a long time. So far, the market has not been worried. Forward markets continue to project that short term rates will rise very slowly: 0.5% by December, 1.25% by June '11, 2.5% by June '12.
ReplyDeleteBut the behavior of the dollar and gold prices suggests that the market believes these moves will be inflationary (i.e., too little, too late).
Whatever the Fed ends up doing, I'm a firm believer that if they do the right thing (i.e., tighten sooner rather than later, and more rather than less) that this cannot be a bad thing for the market. A central bank that errs on the side of caution is always a good thing, especially given how long the Fed has been easy.
Finally, rates of 1, 2, 3 or eve 4% don't seem particularly high to me at all. The economy is clearly recoverying; why should 4% interest rates prove to be an obstacle to continued recovery? We've had much stronger growth in the past in the presence of much higher interest rates.
And besides, excess reserves are going to be extremely abundant for years, unless the Fed takes drastic action to sell assets soon.