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To: Bobby Yellin who wrote (47743)	2/1/2000 7:45:00 AM
From: long-gone	Respond to of 116764

<<Message #47743 from Bobby Yellin at Feb 1 2000 7:17AM I thought we all knew that the thirty year bond doesn't really count anymore since>> (in part) "Hot Shot or Old Reliable? Call me old-fashioned, but I like to think that in the end, the stock market's single, most influential factor is the economy. Now, some would like us to believe that we are in a new era. Well, call me foolish, but I am not about to get rid of factors that worked for a very long time just because some 25-year-old, hot-shot analyst from some investment house told me on CNBC-TV to throw all the old books out. Ex-fed Governor Lawrence Lindsey, a man I think is far more qualified than Mr. Hotshot, recently made what I think are some of the best objective observations regarding our economy. He said there are three guideposts: the labor market, the U.S. current account, and the yield curve. They all work because they represent physical or financial constraints on the ability of the economy to expand. Let's start with the labor market. We are quickly running out of workers. The number of unemployed people without college experience has fallen from 2.7 million to 2.1 million in the last four years. Seventeen years ago, when the expansion began, there were 8.5 million such unemployed workers. At this rate, this market is less than a year away from equaling the already tight market for college-trained workers. The labor market constraints are ceasing to be hypothetical ones and quickly becoming a solid brick wall. Of course, markets tend to create an airbag of soaring labor costs to cushion the economy before it hits the brick wall. Recent employment cost index suggests that the airbag is beginning to inflate. In the U.S., we have seen our current account deficit explode. We are borrowing $300 billion a year. If the savings and borrowing trend continues as is, our deficit will double in just 18 months. Make no mistake about it, no government official is going to discuss the acuteness of this problem. I believe the recent decline in the U.S. dollar is directly related to the alarming account deficit. At some point, foreign creditors are going to demand that America demonstrate the ability to finance itself. This brings us to the American dollar. The fed knows all too well how much we are dependent on foreign borrowing. They know that any significant fall in the U.S. dollar can only increase the pull on the already strained string with which they have managed to secure the dollar with. Despite what some have reported to be the best economic times in the modern era, we still have one of the highest real interest rates. If there is truly no fear of inflation, then shouldn't there be a no-risk premium associated with the term of lending to creditworthy borrowers? If the risk premium could not be withered down during these "boom times", what will become of it if the "Don't Worry, Be Happy" crowd is wrong about the new millennium? Is it just me, or does anyone else feel that "Ex-Fed Governors" seem to be more "realistic" after they have left office? A recent Internet news service report said, "Former Federal Reserve Vice Chairman Alan Blinder stated that the burgeoning U.S. trade deficit has had benign consequences, but added that a sharp adjustment to the dollar to help reduce that deficit is looming. In testimony before a special panel examining U.S. trade policy, Blinder said that he expects that a lower dollarmake that a much lower dollarwill ultimately play a major role in whittling our trade deficit down to manageable size. He went on to suggest that the dollar will be worth only about 70 yen a decade from now." The report went on to say that Blinder had "incipient worries" about the U.S. trade deficit. He concluded by stating that the trade deficit, "may be setting the dollar up for a big fall." thebullandbear.com