Back from Boston

I attended a conference held by the Hartford Group in Boston on Friday, which had a number of fascinating parts to it. The part that is probably most relevant to this site was the presentation by their chief geopolitical analyst, Dr. Quincy Krosby. Here are the key points:

1. We can expect sizeable inflation for the next few years at least. Fed analysts estimate that a "neutral" interest rate (i.e. a rate that is neither accomodative nor restrictive for the credit markets) would presently be between 3.5%-4%. We are now below 2%, and until recently had been at 1% for a very long time. It will take over a year to raise the rates back to a normal level. Even when that happens, it takes about a year for the effects to ripple though the economy.

Why haven't we seen much inflation before now? The China Effect. China and India both exported deflation in the form of cheap goods and low wages, but their economies are both getting built up to the point where they will become relatively more expensive. On the flip side, the roaring economies of China and India are consuming a huge amount of natural resources, particularly oil, driving up prices for these. Which brings us to the next point:

2. Oil will stay pricey from now on, and could get worse depending on geopolitical factors. Global demand is rising dramatically, and production is beginning to level off. Worse, a lot of production is in unstable countries like Nigeria, Venezuela, and especially Saudi Arabia, which is inching closer and closer to a violent overthrow by the Islamist factions such as al-Qa'ida. (Editorial comment: start looking into solar power and better home insulation, etc.)

3. The market is scared stiff of a Kerry victory, because they know that he will wreck the economy. But whoever ends up winning, once the elections are over the traders will return to business as usual because the uncertainty will have disappeared. It's looking like the stock market should have a good year, especially solid large-caps. (Note: I am not dispensing investing advice, investing is risky, standard label warnings, and so forth. Caveat Emptor!)

That's enough for tonight. Much going on in the world that I don't have time to touch.