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Non-Tech : The Critical Investing Workshop -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (4547)	2/21/2000 3:18:00 PM
From: RocketMan	Read Replies (2) \| Respond to of 35685

Thanks, Scott, that is one of the best articles I have read on this issue... perhaps because I agree completely with the author :-) I am also staying with my long-term holdings, since there is little alternative. I am a terrible market timer, and bonds and savings accounts just won't get me the returns I need. What concerns me about the current situation with the Fed is that -- if we are to believe AG's statements -- he has discarded the cloak of fightng inflation and is going right after the markets. I have suspected for some time that was his real target, and I suppose he finally got tired of being embarassed by the numbers that show little sign of inflation. He now states that "outsized increases in wealth cannot persist indefinitely. For so long as the levels of consumption and investment are sensitive to asset values, equity values increasing at a pace faster than income... will induce a rise in overall demand in excess of potential supply." I know it is impossible to translate Greenspeak, but I think he is saying that if the American investor keeps spending more than he/she is earning, because of market appreciation, the imbalances (read: interest rate hikes) will continue. That means he would like to see either less consumption or market appreciation lower than income rise. Well, the first is counter to human nature in a strong economy, and the second is impossible. Impossible because for the stock market to appreciate at a lesser rate than income would imply a stagnant or decreasing market over the long term, something which is counter both to the underlying fundamentals of tech companies and to the risk that people are taking in the market to get these gains. So what would happen is that either the market divergence will continue, or AG will succeed in driving the markets flat, and after a while investors would give up and pull out their money, causing the markets to dive. That is not a sustainable solution, and I doubt if even the Fed would be able to keep up such a policy for more than a few months, even if this was not an election year. So I think in the long term we will keep seeing more of the same, and the qualcomms and ciscos of this economy will continue ascending the technological mountain, with occasional severe pullbacks which are great opportunities for those with the strongest guts.