What’s the media flavour now?

The US equity markets also firmed up, shaking off the alternating fears of inflation three weeks ago to economic slow down, the flavour of the week, for this week anyway.

The truth is though that equities are being held in check right now by concerns of a global slowdown. Remember the theory "the truth doesn’t matter, it is what people believe that counts." That said, you don’t see the US Federal Reserve slowing up on the "slow and measured" interest rate hikes yet, and reading too much into their discussions or meeting minutes at this stage can be misleading.

We also note that European investors are very focused on US data, continually interpreting its affect on their economies and investments. They will be looking hard at US economic reports scheduled, including the Producer Price Index, the Consumer Price Index and the Fed’s survey of regional economic conditions which was released yesterday, and the Conference Board’s index of leading economic indicators out today. Thus, this week, we have focused on statistics which reveal what the core players in the US economy are saying — and hopefully thinking too.

A healthy US

We have seen a lot of focus on energy costs and lately some arguments offered that energy costs alone will stall the major economies of the world.

Although not all economies are in the same state of health, the worlds leading economy, the US, is pretty healthy. White House economic advisers have said, "Although the recent rise in crude oil prices is creating headwinds for the economy, we do not expect it to stand in the way of continued expansion."

Their statement still forecasts GDP growth at 3.5 percent for 2005, down slightly from 4Q 2004, when US GDP expanded at a 3.9 percent annual rate. Further, core inflation (an inflation figure that does not include volatile food and energy prices) is expected to stay stable in the 2.5percent range.

The National Association for Business Economics agrees, saying that data from a March 24 — April 11 survey indicated that 69 percent of their members expect trend growth, estimated at 3 percent to 3.5 percent, or higher through June. Thus the men in the trenches do not see the same media fears on either inflation of economic slow down.

At Investments Inter-national, barring any more significant catastrophic events, we do believe we will continue a period of positive growth, but in the slow and measured growth pace planned by the key central banks and economic advisors around the globe.

Of major concern is the US trade deficit and Fed Chairman Alan Greenspan observing that the trade imbalance could be a major detriment to the continued US expansion.

We hold that we are still in the early stages of the economic recovery.

Most economic cycles are pretty moderate in their rate of change, requiring many changes over time to shift direction. Much like a large ship at sea. It can take a very large ship days to turn a corner or stop. Financial markets though are a different story. By superimposing the investors’ belief, the markets accentuate the ship’s path by over and under- shooting it regularly, much like a speed boat following the ship.

That is why you can not predict what the market or stocks will do day to day, week to week, or even month to month. In the short run, prices are unpredictable and follow what’s called a random walk.

Over longer terms, however, it is very possible to make meaningful projections.

Bear in mind that most bull markets have an initial snap forward, some level of correction, followed by a longer protracted second stage of growth. If properly managed, a bull market can run a long time.

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e-mail: darcy@investments-intl.com