Post-Election Economic Storm Watch

Post-Election Economic Storm Watch

November 6, 2004

Jobs – Banks are lending again, big job gains coming, Fed tightening worry.
A Second Dividend Tax Cut- Potential for +10% stock gains, $1 trillion.
The Deficit- Improving growth will increase tax revenues, reduce deficit.
Telecom- Telecom Act of 2005 will trigger massive network investments.
China- China is driving world growth but near-term slowdown is a risk.
Iraq- Elections will take place in January but violence will continue.


SHIFT HAPPENS

Major economic change is almost always the result of a change in government policy that drives a wedge between the after-tax return on one type of asset relative to others. This leads to a SHIFT in asset demands as investors attempt to rebalance their portfolios to take advantage of the return differential. The rebalancing drives asset price changes, and ultimately shows up in the creation or destruction of assets.

Formally, these asset market disturbances are identical to the temperature and pressure differentials that drive the storm systems on a weather map. It is worth remembering that economic shifts, and the risks and opportunities they represent, are always transitory.

John Rutledge

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