An opinion for his partners:
US Macro Commentary:
Markets are fearful and unsteady after various inflation-scare remarks from Federal Reserve officials. Gold prices have climbed as an inflation hedge; stagflation theorems are appearing; energy prices continue to headline; and the other usual suspects remain at large (deficits, Osama et al).
Stare into the precipice and jump. Or not.
The key issue appears to be the question: is central bank policy reconciling itself to inflationary pressure in the face of already declared central government spending (particularly on disaster relief if not on the conflicts in Iraq and Afghanistan)? If yes, that seems to imply controlling inflation with higher short-term rates even at the price of economic growth. If no, the inflationary impact does not bear thinking about.
Overall, market sentiment is very poor and markets have been/are selling-off. Our own model data is mixed, but leaning positive. The yield curve flattening continues; risk aversion grows; but the PMI index is expanding and the S&P500 is higher than the 6 months prior period. Moreover, the Philadelphia Fed's Anxious Index is sanguine. Overall, the risks of a GDP contraction in the next 4 quarters look less than 10% based on the Estrella-Mishkin probability table.
The logical approach in this environment is to buy those equities that meet our technical and fundamental criteria. Poor sentiment has historically been a consistent contrary indicator: if the macro picture holds this strengthens the view that we should be looking for purchases.