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To: LLCF who wrote (52712)	5/14/2000 1:53:00 PM
From: Hawkmoon	Respond to of 116762

I believe they've held them artificially low for quite some time which makes people tend to favor stocks over fixed income... fooling people into the market [if true] in effect. Overall, a good post David. But let me plant one thought in your mind here. Back in the '50's and sixties, US interest rates were between 3 and 4.5%, with one breadwinner usually able to make enough to provide the needs of the entire household. Today it requires both spouses working and interest rates are almost twice as high. So I think it would be hard for someone to state that real wages are undeserving of reasonable increases so long as productivity growth corresponds. One further point (which I've discussed before), that being the fact that the money flow from 401Ks and IRAs continues to flow each and every quarter. That money is relatively limited in where it can be invested (depending on the plan your company offers). Most of it is invested in index funds. The Fed can't stop that money flow without enacting measures that directly impact the earning ability of workers (causing a recession that increases layoffs). The fact that the rate of flow for this money has occurred in light of the Baby Boomer generation socking as much away as possible in investments before they retire in 10-20 years only further exacerbates the problem for a Fed that is worried about asset prices. Baby boomers are limited as to where they can invest. Many of their plans only permit investment in the US, or in index funds. Gov't workers are limited to three choices in their TSP program, S&P500, govt t-bills, and commercial bonds funds. So what we have is a systemic problem with the allocation of pension money and it is a systemic problem that exacerbates the extended prices of the top 10% of the largest US companies in the DOW, the Nasdaq, and the Russell 2000. Combining that problem with the proliferation of mutual funds whose money managers are more concerned with their yearly bonuses (with trading patterns that inflate that bonus), we see further problems with the efficient allocation of investment capital in the US. Hopefully, we'll see more people move out of mutual funds and into managed money accounts with fee-based advisors. And maybe we'll see the government recognize that the IRA and 401K structure they have created for retirement purposes has skewed the allocation of capital in the equities market. Btw, real estate can be placed in a IRA, but apparently few organized plans managed by brokers or banks have the expertise to facilitate this. So people just keep buying the easiest asset, namely stocks, and more specifically the S&P 500. So if you, or Alan Greenspan, are looking for the REAL REASON that equity asset prices are inflated, there's your smoking gun. Regards, Ron