An analysis,, for your eyes..
<<He tries to restart engine 4 but the turbocharger (interest rate cut) disengages, >>
Don't fight the FED is being ignored in your read here. Interest rate cut is very much engaged and has given nightmares to many a shorts. You totally ignore that AG and Co now realize that in this 'new-economy' they can afford to maintain a low level of interest without igniting the inflation. Today's number confirm that, moreover real rate of interest are at historical high level, they should not be here at the first place, how many times in the economic history of USA we have seen these high real interest rates and such a strong growth, albeit we have seen it lower at nearly 2.8% but GDP growth of 3% is a norm historically and to achieve that with low unemployment and highest real interest rates is a turning point in the annals of recent 'academic intellectual economic debate within the FED. Not in a very distant past you had written about the possiblity of higher inflation as a result of higher commodity prices and inability of FED to cut, now in a 180 degree turn you are making an argument which is diametrically opposite to the one you have made before. This confirmation of breakdown of unemployment-interest rate relattionship can help FED cut a lot more than you can think of. Inevitably the slow down that you are anticipipating would result in lower commodity prices and lesser inflation, don't you think that we are looking at a new phase of non-inflationary growth.
<<Mr. Greenspan your engine 1 is at full throttle you state productivity and efficiencies are at record breaking levels never seen before, then will you answer why corporate earnings are falling, personal savings are negative, and disposible income whether credit or equity driven is declining at an alarming rate?>>
Look at IBM numbers today, I think nothing in the above conclusions can be seen in those numbers, even 2001 visibility is great, if writng down of investments, $ strength that does not help IBM and slow down in computer peripherals can give such results, I don't think that at euro/$ parity and improvement of IIX/DOT vlauations from ashes plus positive environment created by fiscal restraint and fiscal cuts may not yield the finest landing runway for the economy, we have a lot more space and a lot more power and a touch down is very near, neither GE nor IBm confirms that trend that you call << why corporate earnings are falling>>.
I think this argument of yours about personal savings <<personal savings are negative>> is again without any concrete basis, personal savings numbers are a big time fiasco, they represent nothing but an antiquated and totally out of favor yardstick when your favourite liberal 'tax and spend' policy ruled supreme. I think 401 K that you don't have, the equities in the houses are all very much reflective of personal wealth, a person who is paying a big mortgage may end up saving very little but his capital appreciation is not a part of any saving that we see routinely. In 'tax and spend' society where 85% prohibitive taxation was the name of the game, this argument or number had some validity, now no more. You are again being too simplisitc like you always have been to talk about productivity gains <<state productivity and efficiencies are at record breaking levels never seen before>> but refuse to make comaprisons to huge momentum of earnings that corporations has seen since 1995, if you have some time please go back look at the price relationship to the revenue growth of just 3, IBM GE INTC, from 1995 to 2000 you will be surprised that the productivity gains that you are ridiculing are very much reflective in the numbers. Look at revenue growth and the profit growth on both count the `995-2000 era is not the same as 1990-1995 period or any other period of US history. I wish Lee would be aorund to help me post the compariosn from the charts I still take help..
<<Why is the U.S. Inflation Rate the Highest in the Industralized World?>>
Manageable inflation makes economies, I think you are totally mistaken to make comparison of Us inflation rate with the 'Industrialised world' which world you are talking about, siting in Baltimore to talk about global economy with such out of sync statements is provocatively rich and absolutely wrong.
If Japn is your point of reference, the whole economy needs a dose of inflation, a Japanese does not spend becasue he knows he can get things cheaper next year, the aggregate demnad cycle is a virtuous cycle, to create one needs vision and flexible labour pool with people who have the tendency to spend not save at zero percent returns, last five years we have no inflation does that mean it is good for the Japanese economy? No it has been a total disaster and Nikkei is one good example. I think some inflation is good for the country as well as assets, the $ valuation of some of the stocks adjusted for inflation will make you realize that osme of these stocks are really cheap.
If your point of reference is Europe than you don't know the background of the set backs Europe has seen, the Euroland had the highest inflation when Germany united the huge number of bonds issued at a very high rates and the control of ERM and the snake knocked pound out of the system, the economic welfare of German unity was guaranteed by Euroland recession where artiifically in 1992-94 we saw interest rates as high as 13% to defend the parity of FRF with DEM and to keep the ERM intact, that eight year of long recession has just ended and that also with the help of US and a kind ECB under very kind Dutch Duesinberg. The Europeans could not think politically to devalue Mark or FRF, but Euro was left to the dogs as low as .83 was rung and the whole purpose was the US- or I would say Anglo-Saxon economic advantage of labour flexibility be over come by a weaker currency, it was not the 'competitive advantage' of Euroland but a managed advantage through weakening of their currency, they did get out of recession and associated disastrous low inflation but eight years were lost, it is just now that Euroland sees some recovery but only if $ is strong, if $ gets weakened they loose the advantage. If you ever read Economist and have seen the MCburger inflation index you would have not made that statement, US inflation rate considering momentous GDP growth is ideal for this high level productive economy. Some inflation is good and zero inflation is definitely sign of absolute recession bordering a depression. Economic reading is not as simple as flying planes and I am surprised by your naivety, if that was the case we could have had dime a dozen AG's around the corner. Once I remember you complained of higher oil prices, you talk about high inlfation in US and i had defended that you came back with the price you paid on the petrol pump as a lame excuse, now i will turn that argument to refute your claims that Us is the most inflation infested country it is not only the Mcburger issue look at the petrol I pay in Europe and in US, we pay four times higher for a gallon. It is not US that is most inflation proned it is the 'cradle to grave' ensured 'socialist infested European economies' that are most prone to bouts of inflation.
<<Why do your smoke and mirror statistics, strip food and energy from the equation? You may not want us to see it in the CPI but we see it in the corporate profits, as their energy cost skyrocketed 65% over last year.>>
The commodity costs are just 30% of any cost, 70% comes form the labour cost, despite of skyrocketing commodity cost as you suggest of 65% the trend now is lower and we have seen that earnings seasons in all its earnest has delivered so far better than expected dos earnings that all of you guys were gleefully awaiting. If 65% skyrocketing and that inventory horror stories of harshest winter that we all saw could not take oil north of 40$ please be rest assured that as I had posted that article yesterday the conventional wisdom around the global jet set mindset of oil politics is to maintain a fine balance, one for the sake of long term stability of their own budgets, second for the sake of 'indigenous commotion', the oil will even after theses cuts move down as we come out of the horrendous winter storms and move into clamer and better spring weather, the softening oil prices associated with lower cost of money and a euro 15% appreciated against $ would bring nerrier times for we the bulls on this side of the aisle.
<<Why do you continue to ignore the "Big Bang" theory that is increasing the Trade Gap exponentially?>>
How is US financing its trade debt, please note that this trade gap issue is a blunted tool too often used by the half cooks, in real world perpetual trade gap cannot exist, any trade gap would be need to be financed, the uS is lucky to have it in US $ and as such the net capital inflows help to plug the gap, it has never been the case that US treasury have to scout the Euro$ markets to finance its trade or currecnt account deficit. Yes it looks bad that you import more and export less, but the kind of industry that has been shunted out is the industry that huge social and environmental costs, it has been replaced by more efficient white collar exports, like Window 2000 NT or Cisco routers or the sattelites, now by importing shoes and garments you are importing cheap labour and hence utilising your labour pool to engage in sectors that are more productive. Now again I would love to buy all my shoes from China where you will throw on my face charges of child labor but will not like 350 million annual shoes (1.2/person) for US to be made by 1 million workers who are paid 10-15 $ an hour, what NIKE does is to get this shoe made for 5$ an hour even less, puts a label on it, spends 15$ a shoe for US based advertisementindustry where Michael Jordans and Tiger Woods big fees comes in and s makes a big gain. This is smart way to what Adam Smith termed as competitive advantage of nations. I can give you hundreds of otehr examples, for me trading is an obsession and an art at cutting edge of human endurence of seeking truth from murky waters, these kind of debates are all lost but it engages me and my mind into what I call a resurgent drive to see markets better..A market call for me is a sacred job, where I try my best put my case, the jury out their is the GDP growth and the corporate growth if the read we try to make have some relvance we would fly like we have done so far otherwise we would be history.. Argumentive rehtorics is ocunter productive and I try to avoid it as much as possible, I had just walked in the night was long and your post intrigued me..
I will try to cut I have to sleep it is nearing 5.00 in the morning..
Mr. Greenspan, If The US Economy is so strong why is the dollar showing signs of weakening, especially against the EURO?
I have made my point above, it is not weakening, it rightful place is parity nearly 18% lower than when Euro was launched with greatest of funfare at 1.18 to $. Please make your record correct. It has hurt corporate profits a lot any further strength in Euro is not flight of asset but a concious decision by hte ECB to restore Euro and see if the forex advantage gains are maintainable!
Mr. Greenspan why is Consumer Debt at an alltime record High?
Mr. Greenspan why is Personal Bankrupcy filings at alltime record High?
'Constructive destruction' is the basis of today's US corporate success, it takes no time to form a company and not time to file for Chapter 11, but the little I saw in US was a huge pent demand for new houses and people looking forward for lower mortgages to finance first time purchases.. Take this constructive destruction out and the whole things becomes difficult to sustain, we have sen in Japan the difficulty of filing for Chapter eleven, the owner also needs to file for the ticket ot the next world, the social stigma to file is so huge, so in 2000 if you care to look even statistics in %age terms are not at your side, since number of comapnies formed have increased many a fold the corresponding chapter 11 filings looks high, but please if you care to look please look at the p%ages I will file the data tomorrow if yuo care..
Mr. Greenspan why is the U.S. current account deficit widening at an alarming rate?
It looks scary if you see it superficially but curent account is made up of what, a country whose capital markets and equity markets has seen a sharp decline of 40% if you look at NASDAQ only and with some rotten stories about impending recession we have seen inflow of the investment slower but that is a normal part in the late stage of the cycle, once the long bond and lower rates are put in place the current account defecit will narrow..as inflows become normal and as some sense pervails in the capital and equity markets, long term decline of equity markets is the best and also the worst test of any economy so far US has come out nice and clean..
Mr. Greenspan why are the markets controlling your decision making process regarding interest rates?
The market equity and capital is not a bubble, we talk about huge indebtedness of US, and throw as figure of 35 trillion $ in personal debts on mortgages but in the same vein completely forget the asset side of the equation, yes the personel debt is 35 trillion$ on houses but 70 million Us homes with an average cost of 100,000 piece for throwaway prices are worth 70 trillion $, this debt can be totally securitised any time if the need be.. at 70% loan to value you get 49 t $ from the underlying assets, 35 can be used to pay back the banks and 14 to be used to do something more productive, 49 trillion $ would need at 7% 3.4 trillion to service and 70 m houshold would only need .....$ to service,, the equation of this is simple but if looked in tis isolation very disturbing.. I guess you will solve this right,, like wise we here have 9 trillon 4 in market cap and a 6 trillion of loans on the government the ten year surplus that owuld pay the defecit comes out of the health of hte market, if you get it right our welfare dpends on the markets performing well not a1a 1930 depression, even your real estate and mine too would go too dogs, for above reasoning to be explained and trenched in it needs AG to talk to every single Americna since he has no time he uses the tool he has at its disposal, he regulates the market, fine tune them never let market get ahead of its new productive PEG rate, now that he sees that inflation is down, the asset bubble is pricked and asset inflation is no more a threat he is ready to use the stick of monetary policy, the long bond is showing that and the naysayers after the market delivers its earnings will fall in line, hopefully so if not I will be looking for trade below 1287 with you on the same side,, ces't le vie ...
Have a good night and bi bi,, please overlook my extravagance with numbers and lot of nonsense.. I live with it and love every bit of it.. |
