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THE CHRISTMAS QUARTER By Mark Anderson _____ Why Read: Q4 has long been a predictive focus of SNS and its members. It tends to reflect the peak economic activity in technology companies, and in general retail, and in equity markets as stocks are rebalanced for the new year. As the major forces behind the world economy have radically changed in recent times, those who traditionally rely on the "business cycle," from the Fed to retail investors, are likely to miss critical aspects of outcomes in Q4. _____ Author's Note: See the Global Report searchable archives for past issues on the Christmas quarter. _____ I find it fascinating to watch the US Federal Reserve and its media sidekick, the Wall Street Journal, trying to puzzle out how both stocks and bonds can possibly be rising at the same time. After all, if the Fed raises interest rates, as past chief Alan Greenspan did in his rather illegal (if successful) attempt to quench the "irrational exuberance" of the stock market, then money will flow from stocks into bonds. That's how it used to work . . . Well, that was a long, long time ago. Here's a great question: If just two dictators could affect the price of a barrel of oil, and they decided to drive the price to twice what it was, thereby increasing inflation worldwide, would the Fed's normal response - raising interest rates - have any meaningful effect? It would not. If an economy the size of China's were based on the wobbly legs of industrial theft and fraudulent bank and property transactions, would the international effects of its collapse be avoided by US interest rate controls? Of course not. Today, the inflation remaining in the US economy is mostly from a doubling of energy prices - and China's implosion. What's a poor Fed governor to do? |
