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Strategies & Market Trends : Waiting for the big Kahuna

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To: Andy Thomas who wrote (7926)	10/27/1997 7:47:00 PM
From: tekgk	Read Replies (1) of 94695

Yes. That is why I said that I am so worried. Here is an old post that I made in July that explains the problem. I tried to find the link and couldn't so here's the text. --------------------------------------- Here's a fundamental problem that I can't figure out. I have always maintained that the market is overvalued by at least 60% and would have to correct sooner or later. I did not know exactly when but I knew enough to get my real money out of long positions back in June and start doing some small day stuff on the short side. If you look at the following chart: cpcug.org then look at this one: cpcug.org You will notice that the loss in "value" from 1929-1950 was about the same as the loss in "value" from 1965-1982. In dollar terms the 1929-1950 period looks like a disaster while the 1965-1982 period looks flat, yet in "value" terms they were about the same. What I think this shows is that the FRB can play currency games by "creating liquidity" making a correction look more or less flat in dollar terms. The dollar and anyone holding it lost big time during this period. What I am struggling with now is - will the next 15 years look like 29 or 65 period? In 29 the gold standard prevented a 65 type of a scenario. In 65 America was at least 70% of the worlds economy and everybody had no choice but to live with the currency game to hide the market correction (remember guns and butter). Now that we are about 22% of the world economy the question is - Can the FRB get away with a repeat of the 65 performance? I think that the answer lies with Hashimoto (this is why many of my previous posts always had something about foreign investments in bonds and other markets over here - no one ever seemed to care). I am sure most of the people here think that he is irrelevant and a fool for threatening to sell US paper and by gold in June. I contend that he is no fool and knew full well that the stock bubble here would eventually burst and that the FRB would prefer a 65 scenario. His warning was very simple - do this and stick Japan with huge losses in dollar denominated bonds and he would pull the plug. He loses either way but at least we would fry with him. He controls 220 billion dollars directly through reserves and 600+ billion via semi government agencies and banks. Is his threat to sell enough to deter the Fed thereby forcing a clearly visible market correction? Will other countries like China + Hong Kong (approx 200 billion together)join in? Speculators will certainly join the game. Is a trillion enough? Who will blink? This is no new era. The 1.2 trillion in foreign lending over the past two years is what caused the stock market to go through the roof and caused the low interest rates. When foreigners bought dollars it went up making foreign goods cheaper - keeping inflation under control. Everyone talks about our amazing productivity growth(which, by the way, actually fell in the last reporting period). The GDP is growing by about 4%. The stock market has been going up at a 50% rate so far this year. These can't diverge for long. What do you think? This is all relevant because it changes how to play the next few years. I have been going with the 65 theory because I think that the Clinton gang is just arrogant enough and stupid enough to think that they can get away with it.

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