Leading Analyst Disturbed By D.C.'s Tax Cuts

To Ed Yardeni,the analyst who coined the term "bond vigilantes,"there seems to be a coincidence between today's rising bond yields and D.C.'s tax cut plans.D.C. is making it all too easy to increase the deficit by readily cutting taxes and hence decreasing revenue.As the deficit balloons,the government must pay more and more interest to skeptical investors who buy government bonds,which ultimately stresses the budget even more.
There's also a fear Federal Reserve Chairman Ben Bernanke may overshoot in his QE2 policy of buying Treasury bonds:another reason to lighten up on the bond holdings.The bond vigilantes have woken up in Europe,and are now waking up in the U.S.,Mr.Yardeni thinks.They're in the position to shut the bond market down unless the U.S. changes its policy.
Rising bond yields means retirement portfolios stuffed with bond funds will lose value,since bond prices fall as yields rise.
The U.K.'s making tremendous progress in cutting the deficit,and Europe's moving in the right direction,Mr.Yardeni said.He certainly doesn't like what he's been seeing in the U.S. recently,however,and neither do the bond vigilantes.
Bond vigilantes are big traders who insist on ever-higher interest rates to cover their risk as governments sink deeper into debt,making the cost of money increase even more.
Other observers disagree with Mr.Yardeni's assessment,saying the increase in bond yields is simply the bond market adjusting to better economic data and growing national debt,rather than the bond vigilantes waking up,and will not be disastrous.
Nonetheless,most financial advisors are urging their clients to move away from a bond market that is seen as being toppy now,and toward an improving stock market.

Why Canada Did Better

On the jobs front,Canada has clearly outperformed,says Andrew Pyle of full service financial firm Scotia McLeod.Canada's growth of over 2% is reflecting domestic demand.Commodities are a much bigger share of Canada's exports,but there's been a slight shift to domestic spending from commodities,which has been helpful in the past six months.He thinks Canada will get an interest rate hike before the end of the quarter.
The financial landscape in Canada was a lot firmer before the recession,Mr.Pyle indicates.Consumers there weren't hit by housing,so their wealth wasn't so impacted.Nonetheless,the direction of Canada's economy and the Canadian dollar,the Loonie, are tied to the U.S.,Canada's largest trading partner.If the U.S. takes a double dip,it won't be good for the Canadian economy,the financial planner noted.
Scotia McLeod is a division of Scotiabank.Founded in 1921,it serves clients through a number of branches,including the National Branch in Toronto.
Bank of Nova Scotia(BNS)

The New Economic World

We're living through change,says PIMCO's co-CEO and co-Chief Investment Officer Mohamed El-Erian.There is lots of transition friction and tension.A lot of improbable things have happened.What the markets are doing is pricing that in.It's more of a square root symbol,leveling off at about 2% growth.There is something fundamental going on,an ongoing structural change.It's all about balance sheets.
The emerging markets had a small heart attack.When the big one came,they had better conditions.It's a good thing we have them there.It's gonna take 2-4 years for the new normal to play out.Only the corporate sector has a healthy balance sheet in the U.S.The market is telling us that balance sheets matter.
The U.S. economy is on a bumpy journey to an uncertain destination-without many spare tires.All indicators are flashing yellow:employment,retail sales and the flow of funds.If you do the bottoms-up analysis,there isn't a sector that's big enough to do the serious heavy lifting.Private sector de-levering and government re-levering are not the formula for growth,but for a multiyear adjustment.We as a financial system are de-levering.Until that is over and we recapitalize,that cycle hasn't been completed.It's definitely a new world,in Mohammed El-Erian's opinion.
Mr.El-Erian is a fan of the New York Mets and Jets,he professes with a smile.

Health Uncle:MedImmune's Building Binge

MedImmune,a subsidiary of British Pharmaceutical holding company Astra Zeneca,is embarked on a substantial building program.Best known for its nasal vaccine FluMist,the firm,which employs 3100 people,has broken ground for a 300,000 square foot research facility at its Gaithersburg,Maryland headquarters.At the same time,it bought a second building with 56,000 square feet nearby,and is erecting a 355,000 square foot manufacturing plant in Frederick,Maryland,where it plans to make its pediatric respiratory drug,Synagis.MedImmune comprises 25% of Astra Zeneca's biotech business.
MedImmune is developing a nasal vaccine for the H1N1 virus,or swine flu.The contractor that makes its nasal delivery systems,however,was caught off guard by the new program,and is having trouble meeting the demand for H1N1 devices.The U.S. government has ordered at least 90 miilion dollars' worth of the H1N1 mist,in addition to normal FluMist,which MedImmune has already begun shipping.This year,regular FluMist will be administered as early as August,when many school check-ups are given.

A Burdensome Bureaucracy

We have an urgent requirement in Afghanistan,General Craddock pointed out,that was 80 weeks to fulfillment.We got it down to 60 weeks;our goal is 35 weeks.There are urgent requirements on the ground.This is simply untenable.We cannot do this.NATO has no counter-piracy policy,either,though it has participated in individual operations.Internal guidance is slow.Parallel tracks for funding is a problem.We were unable to reduce the number of headquarters.We had to salami-slice each HQ to meet manning requirements.NATO and the European Union have to find opportunities to coordinate,sharing the burdens of procurement,counter-piracy and training.We have to get political direction to open those doors.For administrative issues,business issues,the routine business of the alliance,we need to move beyond consensus.The NATO Secretary General needs more authority for timely action.
I started as a lieutenant 37 years ago guarding the Fulda Gap.I am optimistic,but absent the balance,we may well face difficulties and problems in the coming years,General Craddock concluded.With his gray hair and spectacles,he had a grandfatherly quality as he quietly addressed The Atlantic Council of the United States in Washington,D.C.

Special Access:With the NATO Commander

General Bantz J. Craddock,U.S. Army,recently evaluated the state of the Western defense alliance,NATO,for The Atlantic Council of the United States,a foreign affairs study group.General Craddock will complete his tour as Supreme Allied Commander Europe,SACEUR,a post once held by Dwight D. Eisenhower,in July.We are making slow progress in a part of Afghanistan,the general said,but we are stalemated in the south and east.We cannot prevail until greater control is taken in Pakistan.Secondly,the narcotics industry in Afghanistan is supporting the insurgency there.Governance is the critical path.If it fails,we fail.It's up to the Afghan people.Unless they see government as a positive factor in their life,we fail.We build;the Taliban extremists destroy,because they know they will lose if governance succeeds,General Craddock explained.