Semi-Equips - Buy when BLOOD is running in the streets! Message Board

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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!

LRCX 160.52

-4.9%

Dec 12 9:30 AM EST

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To: scott_jiminez who wrote (9343)	1/20/2001 10:06:21 AM
From: WTSherman	Read Replies (3) of 10921

I think you and most market bulls are over simplifying the economic situation and ascribing much too much influence to the Fed. The prevailing notion seems to be that the course of economic events can be rather easily manipulated by the Fed moving interest rates around. This is understandable, since it would seem that over the last 8-12 years this has been the case. However, if you look at it from a more global and historical perspective it ain't necessarily so. The current situation in Japan is a good example of the limits that interest rate changes can have. The current central bank rate in Japan is effectively 0%. Its been that way for quite some time and failed to produce any significant GDP growth. The reasons are many, but, the fact is interest rates alone do not make or break an economy. Moreover, there are many external factors, such as the price of oil and foreign exchange rates that have a big impact. Last year all the "talking heads" went on and on about how the dramatic increase in oil prices shouldn't have much effect on the U.S. economy since energy was a much smaller portion of the economy than it used to be. Well, that didn't turn out to be the case. Oil is back above $30 and a new round of price increases is heading towards consumers. Combined national debt is at an all time high(personal, corporate, gov't) as a % of GDP. This creates an overhang that makes a quick reversal of economic growth patterns problematical. There was an article yesterday about how the % of home equity has declined dramatically over the past 10 years as people have borrowed against their increased home values to spend on things. This was one of the main engines of the boom. A reversal in the price of homes would create huge problems as people realize that they can't sell their houses. I'm not saying there is going to be a long recession or a deep recession. But, its far from obvious what will happen. The market wants to believe that simply dropping rates will rapidly restore high growth. Its worked before, but, its also failed before. What I think is going to happen is that the market will continue to rally as the next Fed meeting gets closer and a 1/2 point cut will actually get OVER PRICED into the market. However, once we get past January, there are suddenly going to be doubts about how long and how deep the downturn will be. Unemployment(a laggin indicator) will rise fairly rapidly and a bout of doubt will set in on the market. The long term trend for the market will be determined by the actual course of economic events. When positive economic data starts to arrive the market will then move forward. When you still see lots of tech stocks that have trailing PE's of 30-50 and some with PE's still over 100 its hard to believe that the risk of events not moving as predicted has been factored in.

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