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Through the (Aker) Woods

MELBOURNE, Fla. -- Let the work speak for itself.

Let the analysis do your talkin'. (And there's plenty below. Keep reading.)

Folks write in and say to me:

Hey! When

James Cramer's

Wrong! he says so. He writes it right there on the site -- for everyone to see -- all the time. Why don't you?

To which I respond two things:

(a) I am not Cramer.

Cramer does things his way. I do them mine.

And listen.

Cramer runs money. He is a hedge-fund manager. His job is to take a given pile of dough and turn it into a meaningfully bigger pile. He is paid to be right.

I am a columnist. My job is to educate ... and to make you think about things you might not have been thinking about in ways you might not have been looking at them. I am paid to guide you through what I think is most interesting and useful about a subject that is very confusing and terribly dull in order to make it more accessible. And to do it without boring you to death.

What you got here is love-makin'. The fun's in the process.

(b) I know when I am wrong.

Everyone who reads me knows when I am wrong.

I do not get on the site and write:

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Wow!! What a great call that was!!

Every time I am right. And so I do not feel a need to get on the site and write:

Wow!! What a lousy call that was!!

Every time I am wrong.


Folks write in and say to me:

You suck. You are wrong all the time. I mean


the time. I have been reading you for a year and you haven't been right


. I will never read you again. Ever.

To which I respond two things:

(a) Fair enough.

Yet think about what you're saying.

Someone who is wrong about everything is every bit as valuable as someone who is right about everything. If I am indeed wrong all the time, you can make yourself very wealthy by fading absolutely everything I say.

You ought to be thanking me.

(b) There's a great market-policing thing going on here.

If enough of the people who matter (members of the paying audience) think me generally useless, they will quit reading. Then my page-views will drop to nil. Then the folks in charge will fire me.

Non-moneymakers are forced to fold. The market always wins in the end.

The View

I last updated my fundamental outlook in November.

Today we look at then and now.


(a) The price measures.

I think the CPI looks to rise further over the next year -- by about half a percentage point or so.

It ended up rising much more and much faster than I thought it would. It accelerated by 1.1 percentage points in less than half a year.

(b) The economy.

I currently see no reason to think that the economy won't continue to grow at a trend year-on-year pace of about 4%.

It's gotten even stronger. Year-on-year

GDP growth accelerated from 4.3% during the third quarter to 4.6% during the fourth and then to 5.0% during the first quarter of this year.

(c) Interest rates.

I think the recent bond rally is a head-fake. I think the bear market has still not fully run its course, and I think policymakers will ultimately end up having to hike rates at least twice more following tomorrow's action.

The rally that brought yields from 6.38% late in October to 6.03% by the middle of November did turn out to be a head-fake. Yields proceeded to rise during the following two months and finally peaked at 6.75% in the middle of January.

Central bankers did end up having to raise rates at least twice more following the November hike.


(a) The price measures.

I cannot figure out whether the wiggle we're seeing is temporary and bound to fade or the start of something much uglier.

I just do not know.

Monday, I wrote

Dave Kansas

to ask about what kind of a signal that silly

pasta indicator of his is sending. (He said prices up. But didn't know if that's 'cause he's in a plusher Zip code now.)

Yup. That's how desperate I am.

My guess is that the money numbers and demand are both big enough (recent past and present) to keep in place the kind of slow and steady upward pressure on prices (overall and core) we've seen lately. At this point, prices seem unlikely to explode ... but that's the risk.

(b) The economy.

Growth's averaged 4.1% since 1996. I see it continuing to average about that at least through year-end.

And keep in mind that there will definitely be wiggles. Consider that about half of the quarters since 1996 (8 of 17) have printed below average -- and that not one of them has had anything meaningful to say about the big picture. A relatively weak quarter does no more permanent damage to a fundamentally bullish call on the economy call than a down week does to a fundamentally bullish call on shares.

(c) Interest rates.

I think central bankers are going to keep hiking the policy rate until they produce the slowdown they say they want to see.

How high will the funds rate ultimately get? And for how long will the tightening cycle last?

I have no idea.

I do know that last time around the


wasn't happy until job growth was averaging 181K; until income growth was averaging 4.0%; and until consumption growth was averaging 5.4%.

I do know that those numbers stand at 249K, 6.0% and 8.6% now.

And so I am operating under the assumption that the Feds are going to tighten yet again every time the numbers in the preceding paragraph fail to look more like the figures in the one above it. And we can't talk seriously about whether they might be done until they do.

I turned bullish on the bond at the beginning of February. Yields settled at 6.43% on the first and then troughed at 5.69% on April 10. They've been rising since. They're at 6.25% as I write.

The technical people I follow (and whose work I frequently reference in this space) are screaming that the bond stands at a critical juncture: It is damned to revisit its January lows if it cannot hold up here; it is set for a 10-point run if it can. There is no middle.

I am betting on the up move. Consider the following passage from a recent note from the

Salomon Smith Barney


This tightening cycle is still mostly about finding the appropriately high real interest rate for a high-growth economy. It is not about crushing the stock market or the economy because a serious inflation problem has jumped ahead of policymakers.

This pulls things together nicely. We get a clean bond rally soon against still-strong growth and higher short rates if there really is no serious price problem.

And if there is? The Fed ends up having to absolutely crush the economy ... and we get a dirty one later.