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Strategies & Market Trends : Rande Is . . . HOME -- Ignore unavailable to you. Want to Upgrade?

To: American Spirit who wrote (47781)	2/21/2001 10:36:57 PM
From: Softechie	Read Replies (2) \| Respond to of 57584

AS I think da bears got da bulls by da balls. More shocks to come for techs. After today I don't think AG will do an inter-meeting rates cut. Economy is going fine.

To: American Spirit who wrote (47781)	2/21/2001 11:07:32 PM
From: prophet_often	Read Replies (1) \| Respond to of 57584

The most worrisome trend we have witnessed since this slowdown began is that most investors appear to assume that the economy will rebound just as quickly as it slowed. A one percentage point Fed rate cut in one month was indeed unusual, but it did not in any way guarantee what many are calling the "V" shaped bottom for the economy (the V indicates a sharp but brief decline followed by a sharp recovery; a U recovery indicates a slower recovery). In fact, the V theory rests on one key assumption that is most likely false. The assumption is that the economic downturn is primarily the result of a slump in consumer confidence. If that were the case, then some dramatic Fed rate cutting might indeed put confidence back on track, and we could all go on our merry way. But it is more likely that the confidence implosion is a symptom rather than a cause. The key to understanding this downturn is understanding that not much about it is typical. Recessions are often caused by excessive Fed rate hikes or supply shocks or events such as the Gulf War that undermine confidence, but this downturn was arguably the result of an investment bubble. That bubble operated like a pyramid scheme. Angel investors and venture capitalists would pour money into dubious new companies, investment banks would take them public, individual investors would buy the public offerings, the newly funded companies would buy equipment, ads, and services from other new companies, which themselves would then go public, and so on. Ultimately, there was an incredible magnitude of business investment and spending that was built on top of a pyramid of unsustainable business ventures. Fed rate hikes might have accelerated the collapse of the pyramid, but the pyramid would have collapsed eventually with or without help from the Fed. In any case, the cause of the collapse is an issue for historians rather than investors -- investors' sole concern now is the aftermath of the collapse. This aftermath will play out in ways that are far more complex than a simple rebuilding of consumer confidence. Ultimately, economic growth is predicated on money and credit growth. Money does indeed make the world go round. Contrary to popular belief, money growth is not primarily a function of running the printing presses a little faster at the US Mint. The key to money growth is bank lending. Far more money (in the form of deposits) is created through the bank credit process than is created by the minting of money. A credit crunch occurs when banks become reluctant to lend, typically due to past indiscretions. A severe credit crunch occurred in the early 1990s as the S&L debacle led to a dramatic pullback in bank lending. What is occurring now is of a similar nature, though hopefully a lesser magnitude. Evidence of the crunch can be seen in recent Fed surveys of bank lending officers, which have revealed the most serious tightening of loan standards since the early 1990s. The reasons for the pullback are obvious. Individual investors weren't the only ones to get burned by the dot-com bubble. Banks are getting hurt both by direct loans to dot-com companies and by loans which were indirectly predicated on the bubble. It is likely the case that the indirect effects were more important than the direct effects. An example would be a loan for an office construction project in the SF area which seemed like a great bet because office rents were soaring. But of course the office rental market was fed by the bubble, and many of these once sound projects might now be looking shaky. Across the board, there was excessive business investment that was fuelled by the bubble. Now we have a problem where companies that still want to invest often can't get the financing, and most other companies don't even want to invest more because they overinvested during the bubble. Consider this view against the current conventional wisdom that we are simply suffering through a brief inventory correction brought on by a slump in consumer confidence and spending. While there is indeed an inventory problem, the suggestion that the economy will be back on track when inventory levels are drawn down and consumers perk up is based on bad assumptions. This economy won't recover to any significant degree until the credit situation improves and businesses are once again interested in investing. The dive in consumer confidence is occurring because businesses are cutting back due to previous over-investment and credit constraints. You can watch consumer confidence all you want, but watching the credit picture and business investment will be the key the dog that wags the confidence tail. This could be a two quarter V-shaped phenomenon, but don't bet on it. Financial corrections like this typically last longer. The 1990-91 recession was brief, but the malaise that followed due to the S&L crisis lasted for three full years and prompted far more Fed rate cuts than anyone had initially expected. Again, we are probably not in similarly dire straits this time, but we are experiencing something more than a brief inventory correction/confidence lull. Interest rates will need to come down significantly further before banks and capital markets ease up again. While the Fed acted aggressively in January, real interest rates are still very high by historical standards. This economy will arguably need short-term rates of closer to 3-4% than the current 5.5% Fed target. It appears that it will take some time to get there. Inflation/Stagflation: the recent PPI/CPI combo is leading to talk that inflation or even stagflation is a risk here. Don't bet on it. This is not the 1970s -- inflation expectations are low, and Fed policy is tight, not easy. Higher energy prices could keep pressure on broad inflation measures in the short term, but with US demand for energy weakening, these prices will come down and so too will the inflation measures. One month of bad readings on core PPI and CPI says more about measurement problems than inflation. And you can bet that the Fed is much more focussed on recession risks than inflation risks at present. briefing.com

To: American Spirit who wrote (47781)	2/22/2001 3:21:56 AM
From: LTK007	Respond to of 57584

AS, there is going to be a recoil rally at some point,but the recoil rallies are often too fast too soon,and have a pullback,if i was caught in this market now having bought a false bottom i would be ready to sell the bounce and then re-enter on the pullback. One argument in your favor is a sustained rally off yesterdays lows would be a W bottom but i myself speculate more bad news coming as i tend,on a % basis,that there is a 50% chance we will see no recovery in the 2nd 1/2. I also favor Jamie McNamee view(a talkin head that appears on CNBC now an then,and makes sense to me). He stated that he has been significantly reducing his position in the "OLD" techs--CSCO DELL LU GTW etc ,and buying companies like EXTR JNPR RSTN(the recent IPO),and these are the type i am looking to when the worst is over. 2252 is a very critical point for the COMPX,if it closes below that,i feel the inevitable capitulation could be at hand--my argument all along has been the high evaluation factor justification would crumble regards companies like CSCO,and it has happened to be what has come to pass. Myself,except being short the DOW,am just side-lining at this immediate moment.max