Sometimes it seems Greenspan has completely lost touch with reality.
David Tice
The Prudent Bear Fund
ticed@prodigy.net
October 20, 1999
"Efficient" Capital Markets or Egregious Credit Excesses?
... while Greenspan can today celebrate that a "vicious circle" never
got established last year, this is silly analysis as the subsequent
unprecedented credit melee only gave a huge booster shot of adrenaline
to a financial and economic bubble already running out of control. We
certainly believe that financial and economic historians will look back
and believe that this precarious bubble should have been pierced last
fall. After years of reckless speculating and leveraging in the
financial system and endemic credit excess-induced economic distortions
to the real economy, the damage was in the process of being exposed, and
it appeared that the inevitable and necessary adjustment period was at
hand. But instead, the Federal Reserve, Fannie Mae, Freddie Mac, the
Federal Home Loan Bank System and many large banks and security firms
moved aggressively to create enough credit and financial market
liquidity to keep the game going. And go it did, with a momentous and
unacceptable cost left to fester for later. Amazingly, yesterday Mr.
Greenspan also mentioned the dangers of moral hazard and market
distortions posed by a "lender of last resort." But somehow he fails to
associate these factors with last year's bailout. Sometimes it seems
Greenspan has completely lost touch with reality.
... than the world's largest casino. As such, it is absolutely
ridiculous that Greenspan claims that this is an "efficient" allocation
of resources. All one has to do is look at some of the recent "hot" IPOs
for clear evidence that something serious has run amuck. At the same
time, over $1 trillion of additional debt has been added to an already
over-leveraged economy, much of it in an unprecedented explosion of
household mortgage debt that has provided more fuel to a residential
real estate bubble. And as consumers dig deeper into debt to fuel the
greatest consumption binge in history, economic history teaches us that
there is no way to avoid the inevitable painful adjustment after years
of excess.
... ballooned over the past year. As such, this sector is clearly one
massive speculative bubble, and this leads us to expect that the coming
adjustment could be quite violent. Moreover, this is an area where
derivative trading plays a dominant role.
Undoubtedly, derivative-related leverage has been a key factor that has
surreptitiously fueled the speculative bubble on the upside, but now
holds potential to feed collapse on the downside.....
... With the proliferation of stock and stock options as
an integral part of employee compensation packages, there is significant
potential for panic if individuals dump holdings in a rush to liquidity.
One thing is for sure, when the speculative spell is broken, there will
be an overhang of employee stock to be sold for years to come.
The stock market is now clearly an accident waiting to happen...
David Tice, The Prudent Bear Fund, ticed@prodigy.net, October 20, 1999
Midas du Metropole has served commentary at the James Joyce Table
I will be a presenting speaker at New Orleans Investment Conference
on Saturday morning, November 6th. I had the pleasure of knowing
Jim Blanchard and it is an honor to be speaking at this conference
and to be a part of what he believed in so much.
I will arrive on Friday and look forward to meeting any Cafe members
that might be attending. For information on this popular forum call
1 800 648 8411.
Bill Murphy, Chairman
Gold Anti Trust Action (GATA) gata.org
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