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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: sidney-8 who wrote (51444)	5/21/2000 4:28:00 AM
From: Stcgg	Read Replies (1) \| Respond to of 99985

Crash and an Over-heated Economy.. You can't have both a strong 'overheating' economy and a crash in the markets (my contention). According to Galbraith (the great crash 1929), the '29 crash preceded the downturn in the economy. So according to Galbraith you are wrong about this. Our overheated economy has caused the Fed to rase rates which in turn create lucrative money markets for investors to park their dollars.. Once investors perceive the stock market to be overvalued and too hi-risk, funds flow out of equities and into the safety of bonds and CD's now providing higher returns.. Once equities lose over half their values and investors perceive a crisis, panic and wealth evaporation ensues.. Once the stock market contracts, the lenders of margin and peripheral debt backing that paper fails.. Once the financials fail, the dollar crumbles.. Once the dollar crumbles, it's all over.. Recession, real estate declines, bankruptcies, and depression follow.. >><<

To: sidney-8 who wrote (51444)	5/21/2000 9:21:00 PM
From: westes	Read Replies (1) \| Respond to of 99985

I think you are misreading Galbraith. In fact the economic cycle started its downturn in June of 1929, and what made the collapse of 1929 so disastrous was that the stock market contraction created a further economic contraction. This started a contractionary death spiral that the Fed of that time was not able to stop through decreases in interest rates. I quote Galbraith: "...the Federal Reserve indexes of industrial activity and of factory production, the most comprehensive monthly measures of economic activity then available, reached a peak in June. They then turned down and continued to decline throughout the rest of the year. The turning point in other indicators - factory payrolls, freight-car loadings, and department store came later, and it was October or after before the trend in all of them was clearly down..." (Galbraith, p.191). What makes the decline from the present bubble in the market different than 1929 is that it is occurring during an economic up cycle. Therefore we have an excellent chance of stabilizing things in the market before the next economic downcycle begins. I do however, as a student of history, realize that the asset bubble of 1999 and 2000 is an extremely serious and worrisome development, and the Federal Reserve should be censored for allowing it to happen in the first place. Had bad fortune placed an economic downcycle in the way of this asset bubble, we would now be staring into the mouth of the abyss, exactly like 1929. Good fortune has it that we will probably avoid that fate.