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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread -- Ignore unavailable to you. Want to Upgrade?

To: Wally Mastroly who wrote (1140)	5/11/2001 3:37:50 PM
From: Boca_PETE	Respond to of 10065

Wally M: RE:(" . I think they are willing to overshoot on the rate-cutting side - as they were probably willing to do on the rate-increasing side. ") I think it was back in the 1960's or 70's when the FED pressed the gas peddle and the economy would start to overheat. Then they'd press the brake peddle and the economy would start to slow to much. Seeing the economy sink, they'd repeat this process over and over. As I remember, it was referred to then as "STOP and GO ECONOMICS". I wonder if we are not in store for a repeat performance of this process for an extended period of years. Any care to speculate on the possibility of the above ? Feel free to chime in, Justa. P

To: Wally Mastroly who wrote (1140)	5/12/2001 6:27:06 PM
From: Wally Mastroly	Read Replies (1) \| Respond to of 10065

Is Stagflation Coming to America? .... (via Les H..) By Paul Schulte, AsiaWise 11 Apr 2001 14:30 (GMT +08:00) This is where it gets really weird. Fixed investment spending growth is now in negative territory in the U.S. Real GDP growth is hovering at about 1-1.5%. Savings rates are still in negative territory. PG&E, California's main power utility, declared bankruptcy last week. It is the largest utility bankruptcy in American history and the third largest of all time. According to Moody's, the largest of any kind occurred a few weeks ago when Finova declared bankruptcy. On the day of PG&E's bankruptcy, it was (shockingly) rated one notch below investment grade. Credit quality within the U.S. economy continues to worsen. A major strike in Hollywood in four weeks threatens one of the country's largest exports -- movies! The manufacturing sector is on its knees. The equity markets are gasping and it looks like many indices are starting to break down. Given these circumstances, it is bizarre that consumption is still buoyant. The inventory of single-family homes is near a 30-year low. Oil inventories are near multi-year lows. Oil imports are surging. Unemployment is still near record lows. California has raised its energy prices 46% with another 30-40% in the cards. (The state is about 11% of U.S. GDP). Housing prices in New York and L.A. are still near record highs and rents are still very expensive. Most important, first quarter wage growth in the U.S. was an astonishing 6.1% -- to $14.17 an hour. Total hours actually rose in March even with the biggest job cuts since 1991. Is this weird or what? In the midst of a serious economic slowdown, there are several dynamics that are inflationary. I hate to say it, but this smells like stagflation -- here and now. This is made even more contradictory when Japan and a few of its neighbors have a persistent problem with deflation. As we all know, there is nothing worse for a stock market than rising costs and falling revenues. The impact on the bottom line is quick and insidious. Corporate and government bond markets are also casualties. There are four dynamics that seem to be creating this problem. The first is energy. Everything I touch in L.A. has gone up in price -- at a time when a strike by both actors and writers looms large in Southern California and when Silicon Valley in Northern California is ground zero of the Nasdaq implosion. The energy price hikes in California are being passed through to consumers who appear not to mind -- for now. There is growing fear that the energy problems in California are spreading to the Rocky Mountain states. In the East, Florida and New York appear to be candidates for energy problems come summer. This is inflationary as growth slows. Watch this space. The second issue is options. They have, for millions of employees, become a worthless currency. Companies who were able to control payroll costs now cannot afford the luxury and are being forced to pay hard cash to keep good people. This is inflationary as growth slows. The third is rents. It usually takes four to five quarters for rents to adjust to a downturn. As the U.S. moves from 4% growth to somewhere in the area of 1-1.5%, it will take some time for retail, commercial and residential rents to adjust. This is inflationary as growth slows. The fourth dynamic is the strange resilience of the service sector to an outright recession in the manufacturing sector. Labor conditions in services remain tight and wage pressures continue even as the U.S. moves into a lower growth trajectory largely due to a collapse in investment growth. As base money growth in the U.S. remains in double-digit territory and credit quality in corporate America deteriorates, there is a deep unspoken anxiety that a fall in the dollar will turn mild stagflation into a major problem. The dollar's strength, for the moment, imports deflation. If it reverses, the problem will likely get out of hand and seriously damage the equity and bond markets. The problem is that it appears that Germany and Japan are forcing down the euro and the yen to trade their way out of their problems. Competitive devaluations among developed nations are squeezing the dollar higher -- for now. Let's hope it stays that way. People who have seen my writing over the years will be surprised by these comments, as I have been an inveterate believer in dis-inflation. The dynamic described above may or may not be a passing trend. I welcome comments -- this debate needs to get started. No one is talking about the possibility of stagflation, the worst of all possible worlds. asiawise.com