From: John Conover <john@email.johncon.com>
Subject: Tomorrow Intel posts earnings
Date: Mon, 15 Jan 1996 20:28:13 -0800
Interestingly, (if you assume that the correlative methods of
epidemiology can be used to forecast the capital markets-and the
programmed traders do not,) the stock market, (at least as shown by
recent historical data,) tends to be an indicator of the future
gdp/gnp movements, (no one knows why, nor understands the underlying
economic mechanism,) leading the gdp/gnp movements by about 9 to 12
months. If history repeats itself, the US could have a recession
starting about election time, (which will make the political outcome
interesting, and unpredictable-remember that G. Bush got bounced-after
winning a decisive victory in the Gulf War-on domestic economic pro
forma.) If it occurs in October, it would be indicative of a more
formidable recession, if the beginning of 1997, a less formidable
recession.
Additionally, (if you assume that the correlative methods of
epidemiology can be used to forecast the capital markets-and the
programmed traders do not,) the German gdp is an indicator of future
US gdp/gnp movements, (no one knows why, nor understands the
underlying economic mechanism,) leading the US by approximately 1
year-the December numbers of German gdp showed a definite "softening."
Two other issues could have an effect on capital markets in the next
12 months-Alan Greenspan, who has a great deal of respect among the
international currency traders-and is responsible, according to many,
for holding the value of the dollar up on his own credibility, may be
leaving the FED, which could make the dollar's value against the other
international currencies unpredictable; and, Hong Kong, which is the
fifth largest financial institution in the world, will be transferred
to the Chinese authority in 1997-again making currency markets
unpredictable. Either, of these could create a negative valuation of
the dollar against the other international currencies-which would be
good or bad, depending on your point of view.
So, if you believe these factors, coupled with the inability to
balance the US budget, it would seem to indicate that a conservative
forecast for 1996 would be appropriate, at somewhat under 2% real gdp
growth, (with most of the softness anticipated in the 4th quarter,)
with inflation rising to 3%, a likely lower value of the dollar on the
international markets, and long bond rates climbing to over 6%, and a
very volatile stock and bond market. As an investment strategy, it
would be wise to track bond yields with a great deal of diligence-if
the other numbers turn out to be correct, and bond yields do not rise
to over 6%, it could signal the onset of a very major recession,
possibly world wide-but this is, possibly, a low probability scenario.
John
--
John Conover, john@email.johncon.com, http://www.johncon.com/