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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank
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To: Lane Hall-Witt who wrote (72823)11/23/1999 6:25:00 AM
From: lee kramer  Read Replies (1) of 120523
 
LANE: Your post about rising interest rates being the key inflationary threat was interesting and perceptive. Let me add a notion or two; inflation is NOT rising prices, inflation is the introduction of new or printing-press money by government. This is the "cause", and a rise in the general level of prices (ususally 9-18 months later) is the "result."

Interest rates represent the "cost of money." Recently, the cost of money has risen. So too has the introduction of "new" government created money. Now a portion of money-supply growth is necessary, to "finance" a growing economy. But I stress that thus far monetary growth has not ignited sharply rising prices, although this could change.

Keep in mind that there's the cost of money (interest rates) and the availability of money. Again, though rates have risen, money remains amply available. There's much "liquidity" to fuel economic growth.

My concern; there's a point where substantial monies will flow out of equities into bonds. I don't know where this "point" is, but so far we haven't reached it. Take a sharp decline in equities with investors afraid that returns will be minimal...then bond yields will look increasingly attractive, and more and more capital will flow out of equities and into bonds. To date this has not occurred; we've seen rotational selling of stocks from one sector to another.

Another concern; when the economy slips into recession, and it will,eventually, government will likely do what it typically does; it'll prime the money pump, introduce massive new money into the economic stream to "save" the economy. This is true inflation. And we've seen it many times before, baby have we seen it; look at the general level of prices and the growth in money supply from 1965-1979. (Lee)
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