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This from a Perma Bull

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Caoi   Friday, 08/28/15 06:39:59 PM
Re: None
Post # of 340855 
This from a Perma Bull
Stocks: ‘It’s Really Not 1998. It’s Worse.
What did Darda say? He argues that “it’s really not 1998. It’s worse”:

The Fed cut rates three times in 1998; today (short rates) are near zero and the Fed’s Phillips Curve models present a very significant obstacle for additional QE. The Fed’s three rounds of QE all came against the backdrop of much higher U3 and U6 rates of unemployment and underemployment (lower resource utilization). With these rates now either at normal levels or getting much closer (we will leave the prime age EPR out of the mix since the Fed doesn’t seem focused on this metric at the moment), the Fed’s models are telling it to tighten, not to ease. In other words, we believe many investors fail to appreciate that the current Fed leadership is very much guided by a slack-based Phillips Curve model of the inflation process. And that is the critical difference between now and the shocks of 2010, 2011-2012 and 2013 that were all met with QE/forward guidance on the part of the Fed, as its slack-based Phillips Curve models were saying the same thing that risk spreads and TIPS spreads were saying. Now they are moving in opposite directions. Thus, putting off tightening — but still tightening — is very different from actual and expected easing. We are thus in a more risky part of the business cycle today than we were a few years ago, in our view…


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