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To: Don England who wrote (87647)	2/18/2001 1:39:27 PM
From: Razorbak	Read Replies (1) \| Respond to of 95453

O/T - "i do apologize to razor. i had been watching javelinas in the yard, trying to gore the corporal, and forgot myself..." ROFLMAO. Apology accepted. </pout off> ;-) Razor

To: Don England who wrote (87647)	2/18/2001 1:49:27 PM
From: isopatch	Read Replies (1) \| Respond to of 95453

LOL/eom

To: Don England who wrote (87647)	2/18/2001 6:57:16 PM
From: patron_anejo_por_favor	Read Replies (3) \| Respond to of 95453

OT <<(the entire housing thing seems quite anomalous) is it not possible that our excess liquidity is now mal-flowing into that mkt. and that the demand isn't really there, hence here comes a bubble?>> Since you've been reading The Credit Bubble Bulletin by Doug Noland lately, prudentbear.com you may note that he stated "in a bubble, liquidity chases inflating assets". He is referring to the phenomenon (in the real estate bubble) that you cite. Back last year, the loans that were expanding fastest last year right up to the crash were margin loans for stocks. Now its real estate, even though there is little fundamental reason why real estate prices should go much higher in the near term. It's a result of altered "price signals" created in real estate borrowing by the GSE's (ie, Fannie Mae), and securitization of real estate loans (ie, the ultimate "lender" who will be stuck if things go bad is FAR removed from the actual loan underwriting process...in many cases its a money market fund!) In other words, because lending costs are held artificially low in real estate borrowing, that's where loan demand occurs (even though its not "needed" or "productive"). An anomaly? You bet! And an unsustainable one at that.

To: Don England who wrote (87647)	2/18/2001 7:27:53 PM
From: cnyndwllr	Respond to of 95453

Don, sorry had a long post written up to try to answer some of your questions, as best I could, and it got wiped out by an "illegal operation." Probably some kind of Clinton thing. Anyway I have to go and so will write you later. I think patron had it right. More later. Ed

To: Don England who wrote (87647)	2/19/2001 12:30:05 AM
From: cnyndwllr	Read Replies (1) \| Respond to of 95453

Hi Don, I'll try to discuss some of your questions with you but you should know that I am not some "phd" masquerading as an ordinary guy. I was an econ major many years ago and I have forgotten more than I'll ever relearn. I made my living at something else. My memory of the basics is sketchy so beware. I think that there must be lurkers and possibly some posters here who could discuss these issues much better than I could. If you can get the attention of supplyside on the rig board, I think he could give a very skilled analysis, but, having said that, I will take a shot at it. I'm not sure what the technical difference between liquidity and the money supply is but I suspect there is one. When I think of this issue I try to simplify the concepts. It is not just the amount of money in the economy that matters; it is how fast it circulates and recirculates. To take an extreme example, assume that the money supply was increased by 100% but all of the increase was buried in tin cans in the back yard because of a crisis in consumer confidence. That increase in the available supply of money would not translate into increased demand for good and services and would have no impact on the economy. On the other hand, in a period of accelerated business activity fueled in part by the prospects of boom times ahead, the same amount of money could change hands many times in the same month and each time create profit, earnings and growth. When the fed eases interest rates it usually puts downward pressure on the actual interest rates that people pay for loans and that businesses pay for funding for new projects or ongoing operations. This in effect reduces the cost of the purchase or the project and makes some projects or purchases profitable or more attractive than at higher rates. The result, viewed as a general concept and without regard to other factors such as consumer confidence, would be a tendency to create more money borrowed, more money expended and with the multiplier effect that occurs when money is placed into the economy, could be much greater growth and demand. The reason this breaks down at times like this, in my opinion, is because of the difference in the way various sectors are positioned to respond to increased demand as a result of increased liquidity from rate cuts. Once again, if you simplify the analogy and assume there are only two sectors in the economy; housing and manufacturing, the potential problem is easier to see. Assume that manufacturing has excess production capacity and that people have purchased their new car, their big screen tv and a computer that works for them. Assume that a bigger house or a new house is on the top of their wish list but that housing is tight, as it is in many cities and that there is a limited supply. When you create cheaper borrowing and therefor stimulate demand, people may not buy another tv or car. Those markets have been saturated. On the other hand, much of that demand may be for housing which, in it's limited short term supply situation, will not result in more increased production but instead in increased pricing for existing homes and for new construction. The short term result would be no increased production in manufacturing and no increased production in housing, but instead increasing prices for homes and sectoral inflation in the housing market. If one of the sectors that is short term maxed out in capacity is energy, the situation is even worse. The more that demand increases, the more the price of energy will increase relative to other prices. Since energy costs are an element of the cost of virtually all goods and services, prices throughout all sectors may rise or profits may fall. The resulting inflation and lower profits would occur DESPITE AND BECAUSE the fed lowered rates, increased money supply and stimulated demand. If you read the analysis "patron" provided in his reply to you, I think you will see this same reasoning reflected. As you point out, if there is a widespread decrease in consumer confidence, lowering the interest rate may not increase liquidity and stimulate demand at all. the slowdown in the velocity of spending may overwhelm any new spending which results from lower rates. As one of the other posters put it (paraphrased) "what happens if Al Greenspan gives a party and no one shows up?" OT My next ten posts will undoubtedly be on pro sports and Playboy articles. I pride myself on my rough and tumble image. Never before have I been accused of masquerading as an ordinary guy who is actually a "phd-creep." In high school I was considered as dumb as anyone and I'm not about to lose that image now. I regret the fact that I learned how to operate this computer three years ago. I will take to drinking beer in volume, develop a beer gut, move from the GREAT STATE OF CALIFORNIA and consider voting republican. I will find my roots (as opposed to "rooting" around for who I am-I DON'T WANT to piss razor off and have to grovel and apologize as some unnamed posters have.) These are things I have to do because up here in the far north of THE GREAT STATE OF CALIFORNIA there really are people who would try to kick my ass if they thought I was on of those closet phd-creeps. Hey, it's a violent word and a man has to do what he needs to in order to survive. Go Raiders. Ed