There is an interesting presentation from the Economic Cycle Research Institute (ECRI) indicating that the US economy has been recovering from the Great Recession and suggesting that the recovery may continue for a while.
They suggest that, from a cyclical perspective, we are about to see higher inflation, more employment, and higher levels of economic activity. This does not sound good for bonds in the near future.
There is an interesting divergence between this good news about the immediate future of the economy and implications for the longer term. The presentation includes several decades of economic data series indicating that the magnitude of US economic recoveries has been declining for a number of decades, and that economic volatility is declining (less difference between peaks and troughs). This means that the US economy is spending a greater proportion of the time in a state of economic contraction or at very low levels of economic activity.
ECRI suggests that unemployment may have peaked for this cycle, but the news on employment is not totally happy. The shortening of the expansion phase of the cycle has some sobering implications, including: Job growth during this expansion, if it continues, is unlikely to compensate for the jobs lost during the recession. ECRI's indicators also suggest that inflation is increasing, which would not bode well for bonds.
Changing topics to the stock market, the stock market looks expensive now, and the prospects for very mild growth do not bode well for improved valuations. For a good source of information on that topic, John Hussman's weekly commentaries contain useful perspectives, as well as references to other sources of information on stock market valuation.
