CHICAGO, Feb. 10, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Clayton Williams (Nasdaq: CWEI), Range Resources (NYSE: RRC), Southern Copper (NYSE: SCCO), Teck Resources (NYSE: TCK) and Deere & Co. (NYSE: DE).
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Here are highlights from Wednesday's Analyst Blog:
Ben on the Hill: Economic Outlook
"To assess underlying trends in inflation, economists … follow several alternative measures of inflation; one such measure is so-called core inflation, which excludes the more volatile food and energy components and therefore can be a better predictor of where overall inflation is headed. Core inflation was only 0.7 percent in 2010, compared with around 2-1/2 percent in 2007, the year before the recession began.
"Wage growth has slowed as well, with average hourly earnings increasing only 1.7 percent last year. These downward trends in wage and price inflation are not surprising, given the substantial slack in the economy."
Inflation, particularly core inflation, is very well behaved, and is likely to remain so as long as we have high rates of unemployment and, I would add, low rates of capacity utilization. It is China and India, etc. that are driving the rise in oil (and hence gasoline) prices. A rebound in growth in the U.S. is also playing a bit of a role.
Poor harvests due to bad weather (the heat wave last summer in the former USSR, floods and cyclones in Australia, floods in Brazil) along with rising demand for meat in China and the rest of the developing world (and hence the need to feed the animals, which uses up more much grain than eating the grain directly) are behind the rise in food prices.
Those who have been predicting runaway Weimar/Zimbabwe-type inflation since the start of the financial crisis have been dead wrong and are likely to remain so. Even those predicting milder inflation (say, the U.S. in the 1970's) have been -- and are likely to remain -- wrong.
In short, the story is one of accelerating growth with low inflation. We are in such a deep hole from the Great Recession, however, that even with a fairly long period of robust economic growth there are still going to be millions and millions of people who are unemployed and hurting. While that is bad news for them, it is also the sort of environment in which the stock market can do very well.
We are in a cyclical upswing and that should be very good for cyclical stocks in particular. Commodity producers of all types should do very well. High oil prices will benefit producers like Clayton Williams (Nasdaq: CWEI) and Range Resources (NYSE: RRC). So should mining companies like Southern Copper (NYSE: SCCO) and Teck Resources (NYSE: TCK). That means strong farm income, which will benefit farm machinery firms like Deere & Co. (NYSE: DE).
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