Market Commentary Dec, 3rd 2003

The Economy Appears To Be On the Mend

As I have stated before, as an investor, we need to keep our eyes on economic fundamentals. Our economy has experienced excess capacity in both the service and the industrial sectors. The Federal Reserve did its job by lowering interest rates to help with debt servicing and putting more cash into the economy. The White House cut taxes and upped fiscal spending. This was all done in an attempt to prime the pump, allowing the economy to expand. GDP for the 3rd quarter was up over 8% and the most recent productivity numbers were up over 9%.

It is not only the U.S. economy that is starting to improve. The global economy seems to getting its' sea legs. Global commodity prices are on the rise, such as; Aluminum, Nichol, Silver, Beef, Corn, Oil, ect, ect, are all dramatically higher. The world is in a wash of cash and the money is being invested and spent.

Let's review the Treasury Yield Curve.

6 MO                 .96%

2 Year              2.06%

5 Year              3.42%

10 Year            4.40%

30 Year            5.18%

The steepness of the yield curve points to an expanding economy and higher interest rates. As discussed before, I expect interest rates of maturities of 5 years or less to increase the most. Global competition for jobs will keep labor costs in check, therefore, will keep sustainable global inflation low. Therefore, I expect the yield curve to flatten. (i.e.: short-term rates to rise and long-term rates to remain fairly stable).

Based upon ones goals and time frame, investors need to prepare for an expanding economy and higher intermediate interest rates.

Sincerely,

Sam Clem
Clem Investments

Past Commentaries:
July 2, 2003
July 28, 2003
September 29, 2003
December 3, 2003