Mike, I think that the eventual pressure on long term rate from excessive borrowing by the government will bring about a more serious rise in long term rates. That may take maybe as long as a year. One of the reasons I think that such higher rate increases are not imminent is that corporate America has amassed a horde of cash, and as a result will not have to go into the market as much as usual near a cyclical peak of expansion (and thus not compete as much with the Fed for borrowing). Once that horde is partially depleted (investments, expansion, normalization of inventories etc.), then competition for funds may start and put pressure on long term rates. Id employment reported in the last two months is just a temporary aberration, and it picks back to rates if 250,000 per month on the average, then the consumer side of the GDP equation could come back into balance and growth. I have no idea if that will happen or not, but it is worth watching as a critical forerunner to potential weakening in 2005.
If you accept the thesis that current deficits are somewhat excessive, and will have to be reigned in by the next administration (whether Republican or Democrat), then you will have to also accept that the bitter medicine will be taken as early as possible in the next presidential term. If that medicine is too severe and coupled with slowly rising long term rates, the eventual slow down and re-balancing of the economy (a process stopped, temporarily and rightfully, in my opinion, by the Fed Res excessive easy money and the very "lose" fiscal policy) will once more reestablish itself and allow the secular bear in equities to resume. The rebalancing and reequilibration of the economy (including massive shifts of workers from one kind to another kind of employment) may take, as I have suggested since 2000, a good 10 to 15 years, and it seems that the natural point of resuming that process would be sometime in 2005.
