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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 683.38

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Nov 12 4:00 PM EST

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To: Gersh Avery who wrote (69470)	2/18/2001 4:37:33 PM
From: UnBelievable	Read Replies (1) of 99985

I'm Confused About Lower Consumer Spending Being Bad Consumer debt is at all times highs and consumer saving is at all time lows. There is an absolute limit to the growth of any economy based on this situation. Ultimately consumers will get to the point where they just cannot borrow any more. Similarly the cost of capital increases as capital formation decreases (lack of savings.) If a total collapse is to be avoided consumers must stop borrowing from the future. To the extent that savings does increase a little bit it will provide some real wealth on which they can live in the future. The continued propping up of the stock market to prices that have no justification in the earnings of the companies their shares represent in the name of maintaining consumer confidence is both deceitful and harmful. The wealth consumers have in stocks is not the numbers they see on their statements each month, as they believe, but the value which they will receive when they actually sell the stocks. As long as a companies earning justify the stock price there is not going to be a substantial difference. But to the extent the price has nothing to do with those earning, as people start selling their stock to get the money they expected to have and need to have to maintain themselves, it will have a radical impact on stock prices. Meaning consumers will have significantly less real resources and they will not be able to meet their expectations concerning maintaining a sustainable standard of living. The fact is anyone who owns stocks has significantly less real wealth than they think. It seems that letting people know about this while they still have time to do something about it, like consume less now and save more for the future, is much more desirable than perpetuating the illusion by propping up the market with additional liquidity, not backed by any real assets, as long as possible, and thereby making the inevitable economic collapse one of truly epic proportions.

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