MDA - Market Direction Analysis Message Board

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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 683.47

+0.6%

Nov 28 4:00 PM EST

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To: Wayners who wrote (71599)	3/10/2001 1:49:56 AM
From: bumboo	Read Replies (1) of 99985

I think we ARE in the midst of a classic asset deflation scenario. The excess liquidity pumped into the system over the past few years had caused the economy (and the stock market) to lose touch with reality. That connection with reality is now slowly being re-established. To add to the collective discomfort, we have a massive credit bubble, a huge trade deficit, and a falling currency. The current economic downturn has also caused an inventory problem, but that, like you say, would normally be resolved by stimulating consumption. Unfortunately, the other problems that I mention could very likely be the dominant factors that prevent the quick recovery that we are all expecting. And if are to face a deflationary environment and an unwinding of the debt bubble, the fed can cut rates all they want and it won't do any good (as evidenced in Japan and SE Asia). On the other hand, even if what you are saying turns out to be the reality (i.e., the market tends to be up 18 months after the second cut), there is a lot water that needs to flow under the bridge between now and then. The NASDAQ could easily fall another few hundred points from here and make it all back up before your 18 months are up. In short, I am saying that there is still a greater risk of losing capital on the downside than of missing profits on the upside.

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