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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: GraceZ who wrote (137758)12/8/2001 2:57:06 PM
From: Mark Adams  Read Replies (1) of 436258
 
Right now cheap oil is masking what is going on with prices.

Just as a surge in oil contributed to the current slowdown, and fostered an acceleration of inflation off the artificial low post 98. Perhaps OPEC 'helped' with the Asian crisis resolution by responding slower than supply/demand would suggest.

All the money that the FED created is going somewhere, it sure isn't going into productive assets with C&I loans continuing to plummet month after month.

You don't subscribe to the idea that the FED has lost control of the ultimate size of the credit pool to the likes of asset backed securities?

IMO- the FED only sets the rate on short term money to address liquidity- preventing lack of liquidity from snowballing out of control. And you have the likes of ENE destroying credit/money/debt and equity at a rate yet to be determined.

If the dollar slides further off its peak all those cheap imports that are keeping a lid on inflation will become more expensive.

Thus far most bets I've made on the dollar falling have failed to perform. Are there any dollar bears left?

4 December 2001 Tom Sowanick Merrill Lynch & Co.

Clearly, equities and h-yield have faced the pain of asset deflation. NASDAQ -62% since Mar. 2000 peak and S@P -26% over the same time period.

H-yld spreads have nearly doubled since the end of 1999, broadening the spectrum of deflation into the debt markets.

The outstanding and peculiar observation is that the $ has continued to appreciate during this same period. The $-index had risen nearly 22% from the start of 2000 through July of 01.

With corporate earnings expected to be -32% for 01 and +13% for 02 and stocks selling at a 40xs trailing earnings, it seems unlikely that stocks/corp spds can experience a V-shaped recovery in 02. If not, then the $ may be next to deflate.

5 December 2001 Tom Sowanick Merrill Lynch & Co.

The 2002 Deflation theme that we presented yesterday was given additional weight this morning from the NAPM (non-man.) priced paid component, which fell to new low of 38.5.

Needless to say the mkt. is NOT focusing on the fundamental threat from deflationary pressures. Instead, the mkt. is focusing on the equities as signaling economic vitality.

From our view, the lack of pricing power is negative for earnings and capital spending. Unless interest rates fall to offset the reduction in prices, real rates will continue to rise.

Japan is suffering from rising real rates even though nominal rates are less than 2% across most of the curve. A skeptical back up in yields (current move) is understood considering that no one believes that deflation can come to the U.S.
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