By Rick Glaze
The stock market continues to look strong in the wake of the robust rally after October lows. Small-company indexes have outpaced the large blue-chip averages with healthy double-digit gains since October. Sound growth, low inflation and low interest rates bode well for a steady-as-she-goes market.
Trade deficits are ratcheting up, indicating Americans are eager customers for foreign goods. Exports have been strong all year but at a lower pace than imports.
Foreign economies are not as strong as the U.S. economy and consequently imports outpace exports - which makes for a trade deficit.
A few years ago the short-term interest rate - known as the Fed funds rate - bottomed out at a historic low of 1 percent.
President Bush was new to the Oval Office and the economic bubble was beginning to collapse. Jobs were lost and a general slowdown choked corporate America.
The Federal Reserve began a series of consecutive cuts, slashing the rate from 6.5 percent.
While the press focused on interest rates, the value of the U.S. dollar steadily and quietly eroded, making our goods more affordable to other countries.
President Bush ushered in a corporate tax cut that left more capital for expansion and investment. The combination pulled our economy out of recession, created jobs and jumpstarted today’s healthy economy.
After 13 rate hikes in two years, the Fed funds rate is at 4.25 percent and many observers think the increases are near an end. Longer-term rates have not inched up with short-term rates, a situation that has confounded Fed Chairman Alan Greenspan and many experts.
In fact, with the recent increase, the 10-year bond yield actually decreased slightly. It seems large investors and foreign banks are willing to purchase the longer-term bonds even if the interest is not much more than on short-term bonds. There appears to be a lot of money searching for a home.
Rick Glaze is president of Glaze Capital Management Inc. of Los Altos and a registered representative offering securities through First Allied Securities Inc.
