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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: robnhood who wrote (57860)	1/14/2001 2:37:25 PM
From: patron_anejo_por_favor	Read Replies (1) \| Respond to of 436258

Without rehashing the whole article, there was some discussion of liquidity trapping, which is the major underlying theme of Noland's commentary. Overall, I thought there was some representation of bearish sentiment, although no one seemed as apocalyptic as Noland (but then, very few financial commentators are and most of these guys have jobs on the Street to protect, no?) EDIT: Also keep in mind that a common problem in investing in financial service companies and banks are that their balance sheets truly are "black boxes". It's very difficult to ferret out the quality of the paper they are holding. As a result, lots of money managers aren't aware, and don't have the time or inclination to look further. There are clues of course....such as BAC's known exposure to both SOC and EIX paper, JPM's massive derivative holdings, GE capital's recent line of credit to XRX. But as a rule, these guys don't "fess up" untill their feet are in the fire, the bank examiners are in their face, and the auditors are up their a$$ets. It's a lot like cockroaches though...if you see one or two problem loans, there usually are thousands of others that havent come to light. Then they do...all of a sudden, and the stock tanks precipitously. Look at FTU when the problems with "The Money Store" became public in the fall...or BAC with SOC.

To: robnhood who wrote (57860)	1/14/2001 3:00:08 PM
From: patron_anejo_por_favor	Respond to of 436258

Here's one excerpt that touched on some of Noland's themes: Black: Nobody's touched on the trade deficit, but it's huge. We are running at about $33 billion a month, which is $350-$400 billion annualized. If we lower rates unilaterally, the dollar might sink dramatically. Unless we coordinate monetary policy with the Europeans, lower rates might provoke a run on the dollar, which means that in the short run, the Fed would have to prop up rates again to try to strengthen the dollar. That has to be addressed. Samberg: The bigger risk is that the dollar stays strong, because there are a lot of problems in the U.S. but there are a lot more problems in the rest of the world. Zulauf: If Barton's scenario is right, the U.S. central bank will be first to act aggressively. Based on that, the dollar would be much weaker than if the Fed were to lag. So there is risk for the dollar for the next 12 months. Gabelli: So the dollar goes to 1.05, 1.10, 1.20 versus the euro. What's so bad about that? Zulauf: The weak dollar would have the following consequences: Last year European companies bought about $200 billion of U.S. companies. U.S. companies bought virtually nothing -- maybe $20 billion -- in Europe. There was a huge discrepancy. On top of that, European investors bought about $150 billion of U.S. equities, while U.S. investors sold the equivalent of $25 billion of European stocks. The flow into U.S. dollars from Europe was just enormous, and you could have a dramatic reversal. That gives you a hell of a swing in the currency market and the stock market, as well. ...and here's another: Gabelli: The government is going to pour billions of dollars into re-equipping the military. There's been no real growth in over a decade. Samberg: This is what I'm hearing: We had an entrepreneurial economy. We had substantial rates of growth, productivity. How are we going to get bailed out? Barton thinks the central banks are going to bail us out. This guy [points to Mario] thinks Mr. Bush is going to find some way to enrich Texans in the oil patch, and that's going to bail us out. Or we're going to build whatever the newest plane is. I think this is a bad equation. It's the way it used to work. Gabelli: So, what's going to happen? Samberg: It's going to be ugly. All the excesses of the 1990s are going to get sucked out in a hurry. The one thing I talked about last year was volatility. In the first four days of this year you had a Nasdaq that was down 7%, up 14%, down 2%, down 8%. Today it's down another 2% or 3%. I'm not an economist, and I don't know if the second half is going to be better than the first half. I just think the first half is going to be atrocious, and you could have a financial accident in the middle of it. Who would have guessed a month ago that the state of California, 12% of U.S. GDP, would face the kind of electricity crisis it's facing? That its two primary utilities are nearly on the way out? Last week there were rumors that Bank of America holds some of their paper, and that it might have some problem. There are unintended consequences of all of this, but in every market cycle I have been through there is the unintended, the unexpected event. So there is fear about what's ahead. The public is disillusioned with the one-way engine. I like Noland, and I think his concerns are very valid. But he looks at the world in a bit of a circumscribed way, through the view of, say, a bank examiner. It's always important to keep in mind that his is only one voice. "Clownish" or not, there are other ways to look at it (which is why the BKX is near an all-time high). If he's correct though, the rewards will be great for those positioned appropriately.