There are a few signs of cracks beneath the surface in the U.S. economy, starting with the weak durable goods and confidence figures last week, and now with the rise in oil.

We did expect a sharp deterioration of the trade balance. The real story on the trade numbers is that the import surge reflects very solid domestic demand.

If manufacturing is recovering [from] this drag on growth, which is already strong, it is probably going to raise some concerns at the Fed.

July was much stronger than expected, but when you factor in the revisions to June, there's only a 0.4 percent increase ... I think these numbers are very close to consensus forecast.

We're starting to see positive signs that the Japanese business cycle may be moving around. The dollar-yen should trade lower in coming months.

We think the Fed is going to tighten by the end of August.

If you look back to 1994 when the Fed was hiking rates continuously, after every rate hike the Fed adopted a neutral bias. However, the tightening cycle continued until early '95, for a total of 300 basis points (3 percent). We are not looking for that type of tightening cycle this time, but nevertheless it does suggest that the neutral bias does not preclude further rate hikes down the road.

It highlights the imbalances that [Federal Reserve Chairman Alan] Greenspan has talked about the last several months. If it doesn't correct on its own by, say, the Fed taking the steam out of the bubble, you could have a violent correction and a market crash, and that could be a serious risk to the economy.

Manufacturing is recovering -- and the recovery, in fact, is accelerating.