September 22, 2000

The outlook for the fixed income securities is a mixed one. The economic slowdown, the weak euro, the high oil prices and the realization that the public debt will not disappear have rattled the bond markets. We have a slightly different view than most people. The rise in oil prices will not be inflationary as long as the U. S. is on the price rule. The effect of the oil price will be analogous to a tax that will slow down the economy and produce disinflationary pressure in the non-oil sector of the economy. The big issue is whether Al Gore or George W. Bush will be elected. That we will find out in November. In the meantime, our model suggests that as the year comes to an end the likelihood of the equity market outperforming the fixed income market increases substantially.

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