Monday, October 25, 2010

Supply-Side Monday?

Two articles this morning that may reveal that the worm is turning on the macro supply-side trade. Most supply-siders have been saying that we have incipient inflation and the Fed is nuts to be worrying about deflation. Second, they've been saying that things really aren't that bad, and that despite disastrous policy emanating from Washington, undoubtedly a headwind, the economy is still incredibly resilient and can do OK. The first article tells us that bond investors may finally be giving up their concern over deflation and are turning to inflation worries. The second article illuminates an emerging view that the US consumer might not be all that dead after all and a whiff of recovery might be in the air. Who's to say, but the supply-side trade - long stocks/short Treasuries - may be starting to gain traction.

One note on the economy...when I say "doing OK", it doesn't mean massive hiring by companies. Rather it means, hoarding cash, investing abroad and other pro-shareholder moves like stock buybacks.


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