Paul....finally, something crystallized in my pea-brain..
We've debated the Naz effect on Dow....etc...don't know how/if your view have changed about potential Dow weakness going forward...but I think I see the main problem to focus on here...
The real problem is net savings. Given the wealth destruction that has happened in the last year and half....given that consumer debt per capita is extroadinary, and can hardly go much higher, and the virtually impossibility of the markets making significant gains this year.....I think this year begins the "reckoning"...Folks are going to start saving again....this must come out of consumer spending...once this psychology takes hold.....it will likely continue, IMO, until we are back closer to historic savings rates....."Saving" will force a perpetual cycle of sorts.....with less consumption, the economic news will only drag worse......reinforcing the idea "we need to save more", etc....until the cycle is broken...which won't be for some time (since we are well from historic savings levels)..
Being a fan of the behavior psychologists studying the markets who are getting so much press lately, I would agree that it is not a linear relationship...ie....I think until now, folks have been mostly stunned.....continued their lifestyle patterns...piling on more debt....refusing to recognize reality....In the truly herky-jerky thought-process by which most people operate.....now/soon...will be the time to be "getting real".....and that means cutting consumption and starting saving..
Bush tax cut will have only a minimal effect, given its size....also, by the time it gets enacted, the forces I'm mentioning I think will be well in control...
Therefore, Greenspan cutting rates will be a bit (a lot?) of pushing on a string.....he is lowering the cost of debt...but if folks are unwilling to take on more debt (and indeed, are lowering debt)...how much good will lower rates do? Also, if businesses have too much inventory, why are they going to borrow (to increase capacity)...they won't...
So, in this respect, I can't see how the Naz weakness can be walled-off from Dow.....sorry for any rambling...trying to get this out before trades... |
