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Pastimes : All Clowns Must Be Destroyed -- Ignore unavailable to you. Want to Upgrade?

To: eddie r gammon who wrote (3533)	1/21/2000 4:11:00 PM
From: clochard	Respond to of 42523

fiendbear.com Coming to the Boil by Sean Corrigan January 21, 2000 Long term returns on the S&P500 have been well-documented and while not unprecedented, the last five years' real and nominal total return were only beaten in the run up to 1929, the last decade being pipped by that and the period to 1958-9. The accompanying chart puts another perspective on the current move. This shows the log of the ratio of the S&P500 divided by the gold price. Neatly enough, given that the first is a financial proxy for long-term economic growth and the latter for price trends and the trendline shows a long-term gradient equivalent to real growth just in excess of 2%. It is notable in the coincidence of the current peak with the trendline off the 1920s and 1960s highs. Each of these periods was followed swiftly by the break-up of the world monetary order - the end of the gold-exchange standard in the 30s and the abandonment of the Bretton-Woods framework in the early 70s. Each was also associated with an equity crash, the first a deflationary episode, the second an inflationary one. Gold did rather well in both! As Governor Meyer pointed out in his speech '..attention has focused on equity prices, the personal savings rate, the current account.. and debt burdens..' This will be a familiar theme to our readers. He goes on:-'..many..of these imbalances are financial in nature and ..play a role in financing expansions...(they) do not typically induce a downturn.. but they may act to magnify any downward forces that hit the economy..' Of course they do, just ask the Asians! The credit cycle is the economic cycle and this one has been a humdinger! Net worth in Western households may be high, but so is net indebtedness. In a sell-off the left-hand side of the balance sheet adjusts, whether you will or not: adjusting the right-hand side - liabilities - is often a little more fraught.