Rob Palombi Quotations

Because of the gridlock, politicians on both sides of the political spectrum will have to be more acutely aware of what the voting public is leaning towards.

Gridlock leads to more debt reduction than either tax cuts or new spending. Because what we will be left with at the end of the day are larger surpluses.

Greenspan's objective is to keep the U.S. economy expanding for as long a stretch as possible. That's why he's being so prudent in his speeches and that's why he'll adjust monetary policy to allow for that.

What's important to keep in mind is that we really only have one month of numbers that confirm the economy is slowing. What the markets want to see is more evidence of a slowdown, which is why this report is important.

What the Fed may do right now is prepare the market for a switch to a tightening policy from a neutral policy, and that may happen as soon as this month. There's always been the expectation that the economy would slow and ease labor market conditions, but that doesn't seem to be happening.

There's still a lot of consumer demand out there, and as businesses try to restock their inventory levels they will increase demand, which will lead to stronger growth. That could be problematic for the Fed.

There's still a chance of a rate hike, you can never officially rule that out, but for the moment it appears the worst-case scenario will be an announcement of a tightening bias. I don't see that happening, but that would be the worst-case scenario.

Now I think that perception is much, much different.

Despite the weakness of the past two months, the general underlying trend for the economy is still higher. The data still point to strength in the manufacturing sector, and upcoming orders appear strong.

There's also concern the Fed will move toward a tightening bias, perhaps as soon as this month.

It was a very surprising number and very harmful for the bond market, given a number of Fed officials have been warning about rising inflation. We could be at the beginning of a gradual increase in CPI, which may lead to some insurance in the form of a rate hike by the Fed.

It's obvious that the U.S. economy is very strong and producing jobs at a very robust pace. Even with the relatively tame wage gains, the market is anticipating another interest rate increase from the Fed.

It's always been a contentious issue, though both the Ministry of Finance and the Bank of Canada, for the record, have said they're against a common currency. I think over a very long time you'll see an amalgamation of currencies, but that's a very long way away.

Consumers continue to spend their earnings from the stock market and other investments. Even with the correction we've seen recently, the average investor is still significantly ahead of where they were two years ago and is still willing to spend a little of those earnings.

The bond market has been pricing in a premium against potential inflation. They've been looking at the numbers for some time and assuming that U.S. growth has consistently been strong enough to trigger inflation, and that is not a good thing for bonds.

Higher rates will eventually reign in the market, but it will likely take additional moves for that to happen in a discernible way. Whether those moves actually come is something the market can put out of its thinking -- at least until May.

But it hasn't. The debt market expects Greenspan will achieve a soft landing, which means corporate earnings aren't going to crash and the outlook for corporate borrowers remains positive. That's driven yields lower, which in turn has kept borrowing costs lower for companies.

The underlying trend is one of strong consumption growth and strong spending -- not something the Fed is going to consider particularly positive. The Fed's series of interest rate increases have not yet been enough to significantly deter the consumer from spending.

The general feeling is that the Fed can afford to bide their time on Oct. 5.

The market is trying to find an appropriate valuation for those stocks. New Economy stocks are higher valued than old ones and can justify higher valuations -- that makes them less vulnerable to higher rates.