FEBRUARY 10, 2005

It was a Dow kind of day . That average, powered by AIG, CAT,UTX,XOM, was stronger than all the rest. the transports actually down. It feels like there is finally a move to quality afoot. It makes sense. The market seems to be on precarious footing with nothing on the near term horizon to act as a driving force higher. The budget Bush released has no credibility. The cuts won't happen, just like they didn't last time. The military spending will be greater than estimated. Rates are going higher, so is inflation. Oil is staying above $45. We've never had a period where oil stayed above $35 for a period of time and not had a recession, except for now.It different so far because the Fed lowered rates as never before. Earnings growth is slowing, comparisons are tougher.

I don't want to sound alarmist, but it does remind me a lot of 1987, which I remember well. Nothing mattered until it did. The dollar was crashing, Yen went from Y200 to the buck to Y165 and then Y130 in 1988. Swiss Franc's went from .48c in 85 to .75c in 87. Gold went from $360 in 86 to $420 in 87 and $520 in 88. The CPI was 1.1% in 86 and 4.4% in 87. The CRB went from 228 to 258 in 87. The budget deficit was 4% of GDP. The current a/c deficit was at a then record 160 billion. GDP growth was about 3.5%. Fed Funds were rising. Stocks in the face of all this kept floating higher until they droped. Trade frictions were very high and the drop was triggered over a weekend by Treasury Secretary Baker telling the Europeans in so many words. You have to stop raising rates, you have to stimulate your economies by easing rates. You have to buy more stuff from us to help ease our trade deficit, we can't be the only economic locomotive in the world. If you don't, I'll let the dollar crash.