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To: NOW who wrote (60972)	1/23/2001 6:06:46 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 436258

i don't know why, but he sure does. note that he has brought the state of affairs precisely to the point: financial markets do not yet reflect the economic downside risks properly / Fed will print as fast as it can get its hands on fresh ink / credit risk will be shunned / the low point of the cycle will be deeper, and further away than is now believed / the risk to lapse into a Japan style stagnation is real, and in fact very high. and, most importantly, SELL THE BANK STOCKS....-g-

To: NOW who wrote (60972)	1/23/2001 6:20:34 PM
From: patron_anejo_por_favor	Respond to of 436258

david: Very good post. Roach is perhaps the best market strategist on the street today. These 3 paragraphs basically summarize my own views for the near-medium macro outlook: Our macro team felt that the confluence of IT- and consumer-led consolidation -- if left to its own devices -- could have the potential to put America on the Japanese style path of an "L-shaped" business cycle. That’s when recession is followed by aborted recoveries and a protracted period of stagnation. This is where the rubber met the road in our macro retreat. We felt that financial markets were still far too sanguine in their assessment of these macro risks to the US and world economy. As the IT and consumer cycles shifted to the downside in the months ahead, we think there is a reasonable chance that a full-blown deflation scare will occur. Stress here is on the word "scare" -- not all that different from that which broke out in late 1998. But that scare could well be the transforming macro event of 2001. If such a scare does, in fact, play out, we believe that the authorities will pull out all stops to counter it. That’s the essence of what we believe is a likely to be a classic reflationary set-up. In a low inflation climate, policy risks are asymmetrical, with the authorities willing to err on the side of too much stimulus in order to keep the deflation scare from turning into reality. Our group concluded that this perceived asymmetry of policy risk could well lead officials to go for growth at any costs. We actually felt that there is a real risk of a policy blunder that could over-stimulate the US economy. But the downside consequences are so severe we believe that policy makers are prepared to take that risk. That underscores the moral hazard of "policy puts" on financial markets. The authorities have made it clear that they will step in when market distress threatens the real economy. That point is close at hand. The financial market implications of this reflation call are tricky. Notwithstanding the potential for further impetus to the current trading rally -- a distinct possibility in the minds of many members of our macro team -- the majority felt another relapse was in the cards as the world headed for the coming deflation scare. As those fears mount, we believe that flight-to-quality considerations would predominate, with long-dated government debt thought to be the major beneficiary. In this climate, we would favor equities with top-line growth (including some technology) and be sellers of anything having to do with leverage and credit risk (especially banks and fixed income spread products).