Thoughts From the Frontline, August 2006

Fingers of Instability

August 25, 2006

This week we revisit some ideas on how change occurs. We are in a transition in the world economy, and it sometimes helps to think about how these transitions take place. What is the mechanism for change? Can we see it coming soon enough to avoid the problems and take advantage of them?

But first, a few comments on the housing market. As we all know, this week the news on both new and existing home sales was ugly. And we should remember that the data is from last month, and anecdotal...

Goldilocks and Just One Bear

August 18, 2006

The markets have closed up for five straight days. So much for my concern that either the economy might be slowing down or that if the economy does not slow down inflation will be a problem forcing the Fed to take action later this fall. Clearly, the majority of investors think we are in a Goldilocks scenario. In fact, Ed Yardeni uses that term in an interview with Mark Gongloff at the Wall Street Journal Online . Mark then contrasts my views with Ed's in an excellent piece called "Soft...

Economic Whiplash

August 11, 2006

The Fed elected to pause in its rate hiking assault on inflation this week. With the backward looking data pointing to higher inflation that must mean they expect the economy to slow down and thus tame what incipient inflation is lurking around the corner. But wait, the data this week suggests the economy may not be slowing down. The market thinks that means the Fed will have to pick up the rate hike cudgel and once again do battle with inflation, which means higher short term interest...

A Thousand Barrels a Second

August 4, 2006

Today we take another look at the energy picture and how it will change over the next decade. Just as the world switched from whale oil to kerosene and from coal to diesel, we will see a change in how we find and use energy. That is inevitable. But the transition will not necessarily be easy or smooth. And there are some surprises along the way. The things we "know" and the assumptions we make about conservation of fuel and peak oil are probably wrong, and we need to get some key...