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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: TRINDY who wrote (70649)	11/17/1999 10:02:00 AM
From: Mike M2	Read Replies (2) \| Respond to of 132070

Trindy, I'd like to put my two cents in. I have been a Hickey subscriber for 3 years - his fundamental analysis is excellent but FA can be ignored for a long time during a Fed induced credit bubble. In my opinion this current mania is most like the 20s but the excesses are far worse. For a nice summary of the similarities I highly recommend Edward Chancellors " Devil Take the Hindmost" pp. 191-232 . In the 20s we had investment trusts now we have mutual funds . In the 20s the high tech marvels were the auto, airplane, radio, the growth of electric power, Henry Ford's assembly line . It is also interesting to note that it was thought that prohibition would boost productivity. Ever go to work hungover ? -g- These were some of the factors which gave rise to "new era" thinking. We also saw the concentration of wealth if the media did not love clinton so much we would hear more about those who have been left behind during the greatest bull market of all time. In the 20s wages did not rise with productivity much of the gains accrued to corporate profits so the workers of the 20s resorted to consumer installment loans to make up for the lack of wage growth- sound familiar! Then, like now most economists saw no inflation that is because the inflation was in the financial markets. It was thought that the Fedral Reserve could prevent depression through enlightened monetary policy -ho ho ho. The real story is during the 20s the Feds monetary policy was too loose igniting the speculative boom what is frightening is the current excesses in money and credit are far worse than the 20s thanks in large part to the reckless policies of the Federal Reserve. cont. in next note Mike

To: TRINDY who wrote (70649)	11/17/1999 11:08:00 AM
From: Mike M2	Respond to of 132070

Trindy, to continue my response John Kenneth Glabraith said in his " The Great Crash, 1929" pp 174-5 " The only question concerning that speculation was how long it would last. sometime, sooner or later, confidence in the short -run reality of increasing common stock values would weaken. When this happened, some people would sell, and this would destroy the reality of increasing values. holding for an increase would now become meaningless; the new reality would be falling prices. There would be a rush, pellmell, to unload. This was the way past speculative orgies had ended. It was the way the end came in 1929. It was the way speculation will end in the future. " I too am amazed at the staying power of this mania but it is important to realize that it has been fueled by many transient factors - I would compare it to a rocket with boosters but we don't know how many stages are left we are in orbit but do not have the fuel to have a soft landing but I cannot say for sure that all of the fuel is spent. What are the transient factors - the profit miracle is a mirage one of the biggest factors in boosting profits has been a decline in interest rate expense along with lower depreciation charges and lower tax rates. For a detailed discussion see The Bank Credit analyst April 1999 or search Barron's 1996 ? Martin Barnes of the Bank Credit Analysts discussed their findings in a past issue. Another major factors has been the misleading accounting for employee stock options where employee compensation via options does not show up on the income statement yet the company takes a tax deduction the the capital gains tax paid by the employee. Search Forbes Andrew Smithers for the dirty details ho ho ho. The single largest factor in the demand for stocks is not baby brats saving for retirement it is corporate share repurchases. Let me tell you another tough love tidbit in 1998 corporate share repurchases amounted to 125% of reported profits how did they do that DEBT -what the new era economists call liquidity. Corporate America is leveraging its balance sheet why ? employee stock options. It is easier and faster to boost reported eps by cutting costs and buying back shares. The trouble with this is it is not a productive use of credit. While cost cutting helps the individual firm in the aggregate they are cutting back on the purchasing power of the consumer - their customers. We have also seen consumer debt growing faster than incomes - the wealth effect of the stock market bubble combined with easy credit. In july 12 ? 1999 Business Week Robert Gordon of Northwestern University released a study revealing that most of the reported productivity growth has come from the high tech sector but it only counts for a few % of GDP . In addition, in 1995 the method of computing GDP was changed they came up with a concept called " hedonic pricing " - meant to capture the increase in computing power at reduced prices used in chain weighted GDP . What really matters in the profit and loss account is real dollars. I have yet to hear of a high tech company report its result in " chained dollars" . If you eliminate this statistical deception the reported GDP growth would decline by 38% over the years 1996-8 as a result the productivity miracale evaporates as well. i would note that the productivity miracle of the 20s was much stronger. more in next note- I can't type and don't want to lose this. -g- mike

To: TRINDY who wrote (70649)	11/17/1999 12:04:00 PM
From: Knighty Tin	Read Replies (2) \| Respond to of 132070

Trindy, Although you cannot tell it from recent issues, Fred Hickey is one of the all-time tech bulls. He, and me, too, like to buy them when they are dirt cheap. However, the differences between his concepts and a dipsters are many: 1. Fred's dip will be much greater. He is looking for a disaster with most tech stocks down from 70-100%. 2. What he is not mentioning because it is way too early to know specific names, is that he will probably be buying few of the existing tech stocks at a bottom. New technologies and new cos. come along all the time and at the bottom, you can get in cheap. Remember, when people lie about the huge amount of money they made in MSFT or Dell, they are not talking about from the previous tech stock peak (1982), because those cos. didn't exist at that time. Most of the cos. that peaked and then crashed are no longer in business. The same thing will happen this time. The next rally will not be pc driven, as this long bull has been. That game is mature. HWP and TXN were powerhouses before PCs and they adapted. I doubt if many of the PC-dependent cos. of today can really adapt to the next wave. Fred was the only tech bull in print in 1990-1991. Though he turned generally bearish, correctly, in 1996, until very recently, he has always had a number of long holdings, and those have done very well. Also, his put recommendations have made huge profits even during this euphoria. Remember, most tech stocks have not gone up more than the market during this period. He has been nearly perfect calling Micron and Compaq and scores of other scamsters. He has been wrong about the dozen or so big tech stocks (not the cos., where he has been right on) that move the indices. But, unless you are an index player or unless you have bet all of your money at one particularly bad period, you've made money following Fred's advice. In fact, more than Fred has, as he was into short selling instead of put buying until the past 18 months or so. And with short selling, you lose more when you are wrong than you can possibly make when you are right. If we only get a quarter's worth of bad sales, you are right and the market would be right to look beyond it. However, we have had lousy sales for some time now. Last year was the first time, EVER, that pc sales were down for a full year. This will be the second year ever. Thanks to creative accounting and the rising stock market, many firms have been able to mask this gloomy performance. But even those who have been the best in the Phi Scamma Jamma fraternity, Dell and Cisco, for example, are starting to note weaker growth in revenues. And when they catch colds, the other cos. get pneumonia. The market may very well look beyond the eps and sales disasters as long as Greenspan pumps dollars into the pockets of speculators. My guess is that he cannot continue to do so for much longer. The dollar and the long bond have been weak and will continue to weaken. For Greenspan's flim flam to work, the consumer has to not only continue his pattern of negative savings, but continue to GROW his net indebtedness at an ever expanding rate. Yes, some folks are foolish and will continue to borrow money they cannot repay, but there comes a level when smarter consumers back off a bit and when smarter banks tell others, "aren't you a bit overextended." When that happens, the Emperor will suddenly be seen to be naked as a jaybird. I think we are getting close to that time. Still, that being said, I recommend using a conservative speculative method, such as 90/10, where you put 90% of your money into cash equivalents and only 10% into markets. We never know how stupid investors can get. Yes, there will be a few dozen of the current tech cos. that survive the crash. And there will be a handful that actually prosper. For example, Hewlett-Packard and Texas Instruments have been through several crashes and prospered during the next upturn. But the next tech up wave will not be

To: TRINDY who wrote (70649)	11/17/1999 12:07:00 PM
From: Mike M2	Respond to of 132070

Trindy, another point of discussion is the strength of the US dollar a bull maket in fianacial assets tends to attract foreign money and for a while it becomes a virtuous circle but this has its limits and one day will unwind with a vengeance. even the US cannot run a trade deficit forever without a decline in the value of the dollar. The trade deficit has helped to keep a lid on product price inflation because our insatiable demand for debt fueled consumption can be met with cheap foreign goods but we must also recognise that much of dollars spent on foreign goods fails to come back to the US producers. Remember employee wages are the source of consumer demand for producers. My friend's father travels to Korea - if you want software you can buy pirated US software in the streets Xeroxed manuals and copied floppy disk - not exactly a bonanza for the US trade picture. Another factor adding strength to the US dollar has been the yen carry trade where hedge funds and speculators borrow at a low rates in Japan to buy higher yielding debt in the US - this works great as long as there is a bull market in US bonds and the US dollar but we have seen this is a two way street. The gold carry trade has worked in a similar way but that has hurt some of the participants so I would expect this to be less of a factor going forward. Another one time factor fueling the equity mania has been the stampede of dollars out of safe low yielding bank deposits into mutual funds at this point I would think most depositors who are inclined to participate in the bull market have done so. It is worth pointing out that cash balances as a percentage of securities outstanding have been at record lows for some time -even lower than in 1929 as Dr. Richebacher points out what is seen as a liquidity driven market is actually accumulated illiquidity. Sell? to whom? if you find this overview compelling and would like greater detail I highly recommend the Richebacher Letter 1217 St. Paul St. Baltimore, MD 21202 1 888 737-9358 - they may send a free sample issue. Mike