Comment February25 2007

CYCLICAL INVESTING COMMENT David L. Smith, Editor February 25, 2007 ODDS OF A ‘HARD LANDING’ INCREASE As of the close on Friday, February 23, 2007 DJIA: 12,647 S&P 500: 1,451 NASDAQ: 2,515 Treasury Yields 2-yr.: 4.808% 10-yr: 4.64 % 30-yr.: 4.78% ¥en: 121.09/$ uro: $ 1.31/ British Pound: $1.96/ Gold: $685/oz. StreetTRACKS Gold (GLD): $67.72 Oil (Nymex): $60.87 PWE: $31.71 CNE: $12.99 FXB: $196.90 FXE: $131.94 EXECUTIVE SUMMARY: The ongoing debate between the “soft-landing” conventional wisdom and the “hard-landing” contrarians moved in favor of the latter recently as oil prices rebounded strongly off their year-end lows and “core” inflation rekindled in December and January. These developments, combined with a surprisingly thstrong 4 quarter gross domestic product advance report, put to rest any thoughts of imminent rate cuts, and, indeed, raised the specter of further rate hikes by a Fed clearly troubled by the “risks of inflation.” Former Fed Chairman Greenspan added some weight to the “hard landing” argument by acknowledging the “possibility” of a recession in 2007, something he would never have done while still in office. CORE CPI 4Q 2002-2005 3.5%Average 2.8% As I have often stated, the Fed is committed, first and foremost, to maintaining price stability, even at the expense ...