Brian Pretti CFA's Contributions

To suggest that the theoretical end of QE2 has been and continues to be widely anticipated by investors is an incredible understatement. Opinions on the financial market as well as real world economic outcomes diverge widely. The two QEs have been an unprecedented journey in the annals of Fed and US economic history.

Personally, I try not to get too hung up on consumer confidence surveys. They are helpful, but as always it’s what folks do as opposed to what they say that’s ultimately important to real economic and financial market outcomes. Moreover, one month’s data certainly does not make a trend. But the University of Michigan consumer confidence survey released last week is at least deserving of contemplation in terms of a near term message.

When the wonderful CFO’s of this world speak, it usually pays to listen. And they have spoken, at least as per the 1Q Duke/CFO survey that hit the tape last Thursday. Let’s listen in very quickly as there are a number of what we believe to be important messages.

I don't think so, Scooter. In a recent discussion I mentioned the fact that former Fed member Larry Lindsey has been talking up the idea of a potential fiscal trap for the US. To be honest, this idea has already played itself out in Japan and day by day is coming to a Euro theater near you in terms of individual country experience.

In early year discussions I commented on thoughts regarding consensus thinking for US GDP growth this year. Call it a 3.5-4% range of possibility. The about face in most Street economist prognostications relative to last summer has been very much dramatic, but easily understandable in light of 1) the magnitude of Fed sponsored POMO activity that began in late August of last year and the ultimate follow on QE2 announcement and implementation, and 2) the tax cut extension legislation that adds an incremental approximate $350 billion of new US government spending/stimulus in the current year.

We are all very much aware of the change in market tone and sentiment over the last four to five months. Strategists and investors fretting over rapidly deteriorating macro leading economic indicators (remember the ECRI reaching levels always consistent with recession?) and contemplating the possibility of a double dip in late summer of last year has given way to these same folks now trying to one up each other in putting forth ever higher domestic GDP growth estimates for the new year.

2011 will see the largest magnitude of US bank commercial real estate mortgage maturities on record. Will this be an issue for an industry that has been supporting reported earnings growth in part by reduced loan loss reserves over the recent past? Here's what the numbers suggest...

A study of equity performance in post-recession rising rate environments, the impact on various parts of the economy (esp. corporations and the household sector), and a review of the most recent large and small business confidence surveys.

Getting right to the point, I believe it will be very important in the year ahead that investors keep “time frames” in mind. This applies both to the real economy and the financial markets. Short-term, prospects for headline US GDP growth at least over the first half of 2011 are looking pretty solid.

Trailers For Sale Or Rent, Rooms To Let...50 Cents...It has been a good long time since I’ve checked in on residential vacancy rates in the US, but it's time for that now. Important why? The dynamics of vacancy rates are suggesting that headline CPI may indeed be heading higher as we move into 2011, Fed QE or no QE. I'll roll through this quickly and show you what I’m referring to. First, a quick update of total US rental vacancy rates, the homeowner vacancy rate specifically, and the overall homeownership rate.

A Little Dent In The Story?...Recently demographer Harry Dent and Dave Rosenberg have been discussing the fact that as we look ahead over the next 12 years or so, the 45-55 year old population segment in the US is set to decline. It's the population wave coming after the boomers and before the gen-Xer's. Of course, and as the graph below so eloquently displays, following the boomers in terms of a population bubble is one hard act as you can see what the boomers did to the 45-55 year old population segment in terms of growth from the early 1980's until literally now.

One day, it’s QE2 that will be the financial market catalyst of all catalysts. The next day a Euro member bank is melting down. Commodities are flying higher on the back of QE2 perceptions the next day and then a few days later they crumble based on the need and near term actions of China to quell internal inflation by raising rates...

A few quick comments regarding the 2Q productivity report that hit the tape a month or so back. Important why? To be honest this one is very important because the "messages" it imparts cover a lot of ground and just happen to play right into a number of themes I have been harping on all year. Importantly, this report also represents my sense of the key tension investors of the moment face in terms of decision making, outside of QE fairy plums dancing in investor heads that is.

Three and one half years ago in March of 2007, we penned a discussion entitled, "It's Delightful, It's Delovely, It's Deleverage". Of course the upshot of that missive was that we suggested that the whole idea of balance sheet deleveraging was to be a huge investment theme to come. Little did we know, huh?

It was only about a month back that I penned a piece for these pages entitled “The Tale Of Two Economies”. That discussion looked at the glaring disparity, especially relative to historical experience, of large company CFO and CEO confidence survey optimism versus what we see at the small business level.

If you could only watch one economic statistic ahead and make judgments about the US domestic economy, and by implication the financial markets, what would it be? Personally, I’d pick personal income. The character of personal income will determine outcomes in housing, auto sales, general consumption, and the pace and level of household deleveraging. In other words, the only way to have sustainable and relatively organic US domestic economic growth ahead is to have growth in income.

As you may remember, when the Fed stopped its last official QE effort, our comment at the time was that there was absolutely no way this was the grand finale of money printing for the current cycle. Not a chance. Our thoughts were that QE would resume either later this year or early next at the very latest due specifically to continued lack of meaningful money growth. At the time, we did not have a whole lot of company with this line of thinking as very few other folks were calling for this, especially in the mainstream. As of now, it has become consensus thinking as we survey the landscape.

In one sense, this comment is very true. And hopefully without reaching for melodrama, the microcosm of data to review in this discussion has enormously much broader implications for the macro cycle of the moment in which we find ourselves. To be honest, it really has global implications when you also invite Japan and Europe to the proverbial party of the moment.

Here In This Blue Light Away From the Fireside, Things Can Get Twisted And Haunted And Crowded. You Can't Even Feel Right. So You Dream Of Columbus...Although I’m probably talking to myself here, clearly one of the toughest things for investors to do really at all points in time is to differentiate between “noise” and important information. For our current generation, maybe this has never been truer than is now the case in the current market environment.

It's has been a while since I have checked in on foreign purchases of US financial assets. It's time now for a number of reasons. There are a few primary "messages" of importance as we listen to what the current data has to say. The International Capital Flow stats for June were released by the US Treasury recently. Only the highlights, we promise. First, over the last twelve months the foreign community has purchased $940 billion of US financial assets.