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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: NOW who wrote (161977)4/25/2002 9:36:14 AM
From: reaper  Read Replies (3) of 436258
 
<<isnt the best scenario for the market and US economy here a big sell-off in equities, with a lowering of LT interst rates? >>

not really. that will create a classic liquidity trap. lower rates in that scenario will NOT be accompanied by more home purchases and re-financings as the lower rates will be indicative of an asset price collapse. i will not be able to yet again re-finance my million-dollar condo when it retreats to my purchase price (of not quite 3 years ago) of $400k.

the way out of this mess is re-flation. basically, cause inflation which de-bases the 'real' value of all the debt out there held by consumers and businesses. debt KILLS in a deflation, but it's not a worry in an inflationary environment.

note that neither one of these scenarios is "good". my bet is on the first one (collapsing assets and interest rates) which will kill the leveraged and hugely benefit the liquid (thus the structure of my holdings; short financial institutions and indebted companies and long a handful of strong cash generators with clean balance sheets). i have come to think that gold will benefit from EITHER scenario, though i have no gold position (which is too bad, as its not like everyone here didn't tell me to own some).

Cheers
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