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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Justa Werkenstiff who wrote (14424)	6/14/2000 8:01:00 AM
From: MrGreenJeans	Read Replies (3) \| Respond to of 15132

Justa One must also entertain the possibility that this a typical second quarter slowdown with reacceleration of demand to come later in the year especially if we get a rally in the equity markets. The lag effect of any rate increases would support this view. It could be the slowdown is a result of the rate increases and that demand will not reaccelerate. It is also possible inflation will remain subdued, the equity markets will rally, and the Fed will sit on the sidelines and let the equity markets go where they may in the abcense of any significant inflation. Remember these last two or three rate increases will be impacting the economy in 2001 which will slow the economy. on the other hand, rising energy prices (natural gas included) could impact the cost of goods which lends itself to the stagflation scenario. So you have reduced economic activity as you suggest coupled with higher costs or lower earnings if those costs cannot be pushed through. Natural gas has its biggest impact during the winter in the heating market. No one has a natural gas air conditioner for example. Generator suppliers and producers that are involved in the electrical, gas and / or oil markets or a mix thereof have a tendency to price their products more expensively during the summer when demand is inelastic and lower their prices slightly in the winter when demand for energy is more variable thereby resulting in higher energy prices during the summer period. An excellent example of this is the way Con Edison prices out its power during summer as opposed to the winter in New York City using a mix of strategies as noted. The reduction of economic activity or lower earnings as a result of higher energy prices generally results in a cutback of employees if costs cannot be passed on or layoffs if economic activity and aggregate demand for output is reduced. This, in and of itself, would lower inflationary pressures as more are unemployed. The Philips Curve effect. Re: "Also consider that if prices remain high other fuels are substituted for oil." The time lag in bringing new energy sources on line would be too great to matter. In the utility industry, the price of oil impacts resource allocation decisions on an hourly basis. If the price of oil on a particular day is too high, coal is burned, hydroelectric power is brought in, nuclear power is used. For those utilities that don't directly own any alternative sources the transmission grid in the US makes it possible for utilities to buy cheaper power from other utilities from virtually any point in the nation or from Canada at a price. Most of these transactions are closer to home since transmission costs can be prohibitive. These pricing decisions are made every day in the utility industry and by other industries that have their own generation facilities on the premises. For example, some airports / industries have their own co-generation plants they use to self-supply. I am preparing for either a soft landing or hard landing. If the economy was to go into a hard landing it is very possible Greenspan would decrease rates to prevent the US economy from going into a recession.