Jeffrey Dean's  Instablog

The Economic Cycle Research Institute (www.businesscycle.com) is continuing to call for faster-than-consensus economic growth in the US (http://news.yahoo.com/video/business-15749628/market-task-force-17379951).  I have followed the ECRI for years, and they have had an excellent track record in calling the direction of the economy 6 months to a year in advance. If we accept their thesis, then we can extrapolate and anticipate market reaction if this becomes the general consensus:

 

1). US interest rates should increase sooner, rather than later.

 

2). The USD with strengthen. The USD will no longer be used in the carry trade, and the Yen will resume this lead role. Thus…

 

3). The Yen will head lower.

 

4). Demand will increase for oil, though this, by itself, may not be enough to significantly increase the price. However, geo-political concerns (i.e. Iran) and secular oil-supply issues (i.e. some form of Peak Oil) will keep an upward bias on the price of oil for years to come.

 

5). Gold is likely to stabilize or head lower. A stronger economic environment and possible geo-political concerns will bring an interest back to the USD and away from gold.

 

Barring minor pull backs, the general equity market should continue to move upward, fueled by excess liquidity and positive economic surprises, at least for the first half or 2010.