June 3, 2004

I just finished reading the June 2004 article written by Martin Barnes, of “The Bank Credit Analyst”. Please also read our text which follows. That text are notes I took at a conference in San Diego last month, where Martin was one of the featured speakers. The following are some notes I took as I read the recent article.

A. Martin Barnes thinks that the Federal Funds Rate will be in excess of 3.25% by the end of 2005. The current Federal Funds Rate is 1.00%.

B. He believes the 10 year Treasuries could go to 6% or greater at some point. The current rate is 4.71.

C. He is looking for a defensive equity stance and would lighten up positions on any strength in the markets.

D. Much of his current views are based on the rise of oil prices.

E. Nevertheless, he feels the economy is “chugging along nicely”.

F. Inflation is growing stronger than most anticipate. Please click on this link to see a recent grid of commodity prices.

G. Claims that US corporations are experiencing export growth with the weak US Dollar.

The following are my notes of Martin Barnes’ discussion, from a conference I went to during the last week of April 2004.

A. Consumer spending will slow, but will not stop.

B. Monetary squeeze is always created by an inverted yield curve. Inverted yield curve is when short-term rates are greater than long-term rates.

C. The economies natural tendency is to grow.

D. For the first time since the 1930’s, the fed is targeting inflation. “You will see inflation rise.”

E. The ratio of Housing Prices / employee compensation is as high at it has been since 1982. Martin also feels the housing affordability index is high. He feels the index will drop when interest rates rise.

Please click on this link to see a graph of household debt compared to disposable income.

F. “Coastal housing markets are overheated and will get whacked when interest rates go up.”

G. Dividend yield is greater than yield on 3 month treasuries.

H. “Not a cheap market.” Martin was clear in mentioning that he expects positive returns over the next few years, but expects them to be quite small.

You can view Martin Barnes’ outline of his April 2004 power point presentation, by clicking on this link.