Rosie,
You wrote:
But what I don't understand, for lack of sophistication I suppose, is why is it bad for there to be low unemployment; for people to be prospering and secure in their lives and future. Isn't this what we are supposed to be striving for our society? Isn't this what we elect our governments for - to provide an environment where we can work hard, be reimbursed fairly and adequately for our efforts and be able to take care of ourselves and ours without looking for welfare, etc.
I'll try to answer this question to the best of my limited knowledge. If anyone catches an error or can explain it better please help me out.
The basic idea is that The Fed prefers to see an unemployment rate closer to 10%. (That's if my memory serves me correctly.)
As the rate creeps closer to 0% the Fed gets nervous. Usually this means that the available pool of labor is growing thin, thus creating higher demand.
As demand grows in the labor market, wages increase.
In turn, as wages increase, it becomes more expensive to produce "widgets".
This rise in price is passed along the supply chain.
With each link in the chain paying higher wages, the more the public must pay for the end product.
This is one way that inflation arises.
Eventually the end product will rise in greater percentage than the average increase in wages.
Then various products become cheaper to produce in other countries, thus causing a shift in the balance of trade.
All of this eventually cycles back to a higher unemployment rate. However this may take several years to heal.
The Fed would prefer to keep the economy moving along at a steady pace. This is the best situation. Employment levels remain somewhat reasonable and inflation is stifled.
No breakdown in the economic machine occurs if growth is maintained at a steady level.
The tricky part is how hard should the Fed apply the brakes.
The problem is that each raise in interest rates requires several months to show up on the economic indicators.
My amature opinion is that the recent barrage of margin calls and stock losses have taken away a good portion of disposable income. The previously rocketing wealth effect has been snuffed out.
Although the Naz has been set back approx. 7 months, there are many of us who are set back levels far further.
Also, as wages go up, so does the demand for many of these New Economy Companies' solutions and products.
They become even more valuable as each technological breakthrough helps the big companies to run more efficiently.
The new economy companies will continue to grow at incredible rates. Their high multiples are justified.
What percentage of growth will be higher:
a) General Motors, Procter & Gamble, General Electric, etc.
or
b) Qualcomm, Cisco, JDS Uniphase, Cree Research, etc.
This bear market will be short lived in my opinion.
The incredible New Economy revenue growth can not be ignored for long by investors.
Just the opinion of an happy idiot...
-Clappy
P.S. My ultra short term market guess is:
Monday the NASDAQ holds up at this level after a short dip.
QQQ will maintain it's level as well.
By late Monday and Tuesday the roller coaster begins it's ride up again.
With low volume...
We will probably ride almost as high as last week's high.
I'd love to see us bust through that level.
However, without the volume we will probably come back and test the one we are at now...
Monday, I'll probably be buying some more of the techs like PHCM, BVSN, GMST, and SDLI for short term trades.
Anyone else like any trades? |
