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The risk trade comes back




This is a Bloomberg index of real-time commodity prices. Commodities have bounced nicely in the past 10 days. The dollar is no longer rising and may be turning down. Gold prices are up. Oil is up. Equities are up. The "risk trade" is back, mainly—I think—because the signs of improving economic activity continue to trump the market's fears. A recovery like we have underway is not something that is easily derailed. Yes, policies remain awful, but that's been the case for the past year. On the margin the outlook for policy has improved, and that is what's important.

I note today the news that a Rhode Island town decided to fire all of its unionized teachers after they refused to work 25 minutes more. This probably marks the tipping point for public sector workers' compensation packages all over the country. The fact that public sector workers have great job security and make a lot more than their private sector counterparts just doesn't make sense. I won't be surprised to see many more towns and states imposing pay cuts and layoffs on their public sector workforce. This is a good thing for the economy (though of course painful for those affected). It better happen here in California.

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