12 Nov 2004 Short and Sweet

The election is over, oil and gasoline prices are coming down, the stock market is going up, and the job market is improving.  These trends suggest continued improvement in the consumer side of our economy and this week’s economic numbers certainly bear that out.  The loudest and best indicator, the stock market, rose 1% this week and is up over 7% since the end of October.  All these factors suggest a better holiday season for retailers, particularly online retailers whose sales are up over 12% compared to this time last year. 

The Fed did as was almost unanimously expected and raised its target rate by another quarter percent to 2%.  Their assessment of the economy was that it was showing ‘moderate’ growth and that the job market improved.  Last month’s characterization was muted on job improvement.  They hinted that they were not finished raising rates, but that they would continue their ‘measured’ pace as they said “with underlying inflation expected to be relatively low, the committee believes that policy accommodation can be removed at a pace that is likely to be measured.”

While some major fundamental issues cloud our long term investment view, near term prospects continue to improve.  Our strategy is to position ourselves for the best possible returns during the intermediate term while watching closely the potential outcomes among certain upcoming major issues such as Social Security, Tax Reform, and Medicare.  They each pose investment risks and opportunities that will present themselves as policies are debated and enacted.  Finally, we see significant opportunities in emerging markets such as Latin America, Pacific Rim, and China.  And if their respective governments can remove or reduce their numerous productivity destroyers such as high taxes and excessive regulations ,Japan and Europe may represent better opportunities as well.