Way OT -- interesting post. 2 things i don't understand:
1. 'The wealth effect
has allowed the national savings rate to go zero and below. The tremendous capital
gains have kept housing and autos going full tilt. '
Why is it that stock mkt gains don't count towards savings rate? If I save $10 and buy a stock and it goes to $20, my savings was only 10%. OTOH, If I save $10 and stock goes to $20 and I sell half and save $10, my savings is $20, but i get cap gains. Makes no sense to me. These days 401ks, stocks, home equity are largely seen as nest eggs and represent cumulative savings. But our measures don't capture that.
2. How can real rates continue to rise. Granted, there are renewed inflationary pressures, but real interest rates were already well above historical norms. Don't quite know how to connect inflation-driven rate rises with you deflationay environment.
BTW, I see your scenario as quite plausible in the back half of 99 or 1H 00. My instinct tells me we get a blow-off top in Q3 99 and then a bear mkt thru most of 00, but every time i though this mkt was dying it fooled me. Also, WAY too many other people expect the blow off, so it may not happen at all and we just quietly slip into the next up/down trend without any dramatic movement in the "oppposite" direction. |
