I repeat: 2004 is not 1994

Last month, in "Singapore stocks down despite good 1Q results" I wrote that although interest rates are likely to rise in the near future, there is unlikely to be a repeat of 1994.

I gave two reasons for caution on the part of the Federal Reserve. One is that job growth has been weak. The other is that households now are in much greater debt than in 1994.

V. Anantha Nageswaran, director for Global Economics and Asset Allocation, Credit Suisse, appears to think so too. In his article titled "Fed monetary policy stance — Why 2004 is not 1994", he wrote that "the Federal Reserve would tighten monetary policy by about 50 basis points this year and not by 125 basis points as the market is discounting".

He thinks that "there cannot be a repeat of 1994. Then, US household debt was low, the Federal budget had been turned around with a tax-increase and spending-cut budget in 1993 and there was no labour market arbitrage available from India, China and other developing economies."

In contrast, he thinks that at present, the "inflation demon has been slayed. To go to war against it with higher interest rates would be to bring back alive the demon of deflation that is always lurking around."

Nageswaran also thinks that "the dollar strength is unlikely to last". He thinks that gold may be a good buy now.