Thoughts from the Frontline

Stuck in the Middle With You

By John Mauldin

May 4, 2007

Stuck in the Middle With You
Follow the Undocumented Money
The Further Decline in Housing
Massive Reserve Liquidity
A Market Melt-Up?
Scotland, Spain, Switzerland, and Tulsa

Clowns to the left of me,
Jokers to the right, here I am
Stuck in the middle with you!
- Stealers Wheel, 1974

The recent data on the economy is stronger than was expected. Does this mean that the slowdown we have seen for the past few quarters is behind us? Other data suggests the economy is weakening (witness the very slow 1.3% GDP growth last quarter). This week we look at the seeming disconnect in the data, briefly examine where the real stock market booms are happening, and re-visit the housing markets. It's a lot for what will be a quick letter (and lots of charts), as I am trying to leave town, so let's jump right in.

(And yes, I was supposed to finish a letter I started two weeks ago on black swans, but a technicality is holding up that letter. It will be resolved next week.)

Stuck in the Middle With You

The last few days have seen some positive news on the economic front. The national ISM data on manufacturing came in at a healthy 54.7, up from 50.9 last month and over 3 points above consensus expectations. The service sector index was an even healthier 56. Jobless claims dropped to 305,000. Unit labor costs were lower than expected while productivity was somewhat higher, which is good…

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