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

To: Far Side who wrote (50037)	4/3/2001 10:36:34 AM
From: Ross Reller	Read Replies (1) \| Respond to of 57584

Diary comments from noted IPS Funds manager (and frequent tv guest of Maria's), Robert Loest: April 2, 2001: Excesses? Former Treasury Secretary Robert Rubin made what I thought was a very insightful comment on the First Anniversary show of Market Week With Maria Bartiromo last Friday night on CNBC. While I don't always agree with his political leanings, he has been a savvy investor as a partner at Goldman, Sachs for decades, and his insight into markets is something I think should give encouragement to those of you who are worn out with worry that something awful has gone wrong, and that stocks and the economy will never recover. He simply pointed out that it is in the nature of human beings that prolonged periods of prosperity always bring with them excesses. At some point these excesses must be corrected before we can get on with things. That's what is happening now. Nothing more, nothing less. It will take awhile, that's all. Think about it. During the enthusiasm that accompanies prosperity, businesses build too many plants, hire too many people, pay too large a bonus, and build up too much inventory in the anticipation that prosperity will continue. The longer it continues, the greater the excesses. Think of it from your own perspective. Excesses mean more expensive houses that we maybe otherwise would have bought under more normal circumstances, newer, more expensive autos, more debt, heavier spending, less saving. At some point we simply have to cut back, spend less, save more, drive the car longer. All these excesses tend to happen at the same time, and exacerbate the situation. Periods like this require some unwinding, some pain, written down inventory, laid-off employees, debt delinqencies, bankruptcies, a market crash, more saving. Add on top of that the huge increase in energy prices, and you have the financial shock that turns a correction into a recession as consumers (two-thirds of the economy) dramatically rein in their spending. It may take a year or two, but it is a normal corrective phase, and we are well over half way through it, and probably even within a few months of the end. We saw the same thing happen following a really prolonged period of prosperity in the 1950s and 1960s, something the country had never even remotely experienced before. Following the Great Depression and WWII, you can only imagine the euphoria that accompanied that fairy tale prosperity. It lasted for a generation, and the unwinding was the most painful since the 1929 Crash and its aftermath (the aftermath was totally unnecessary, by the way, and created by massive government stupidity all around). We saw the same thing in the 1989 - 1993 crash in real estate, and to a lesser extent the stock market in 1990 - '91. That one was set off by the Gulf War and the financial shock of real estate prices crashing. Today's crash follows a similar period of prosperity, shorter than the others from 1995 - '99, but perhaps more euphoric. There is nothing unusual going here. It isn't the End of the World. Nothing has changed, certainly not people and their tendency to get carried away by good times. Just wait it out. Excuse me now, while I finish my peanut butter and jelly sandwich for supper.