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To: Gut Trader who wrote (106523)	6/4/2001 9:00:15 PM
From: robnhood	Respond to of 436258

comstockfunds.com; << Deflation - A Strange Phenomenon Alan Greenspan, addressing the International Monetary Conference delegates last night stated that “inflation is currently not a significant problem” in the US economy even in the face of energy prices and unit labor costs rising. His reasoning is based on the premise that corporate America is not able to pass along the cost through price increases due to excess capacity. Instead the higher cost is shrinking profit margins and in turn effecting corporate earnings. In an unusual development, Dallas Federal Reserve Bank President, Bob McTeer, stated today that the US economy may have hit bottom and if it starts up from here the US could have an inflation problem. This seems to indicate that Mr. McTeer is not on the same page as Mr. Greenspan. In another development today Fed Governor Edward Kelley, Jr. said he will resign from the central bank as soon as one of two vacant positions are filled. Kelley said he wants to “focus on family and other interests.” What’s going on at the Fed? We suspect the members of the Federal Open Market Committee are in complete disarray on how to deal with the strange phenomenon called “Deflation.” We think they are going through the same dilemma as John Chambers at Cisco when he talked about going from a growth rate of 70% annual clip to an “unanticipated economic chill” (Deflation = 100 Year Flood 4/23/01 in archives). He said it was like “anticipating a 100-year flood”. We believe what Cisco went through when they “hit the wall” was the beginning of deflation, and since there are not a lot of data points on deflation, it is very difficult to anticipate. Today, in an SEC filing, Cisco reiterated, “the slowdown that’s driven some telecoms out of business and others to slash spending will continue for the foreseeable future”. Other warnings that go beyond the F.D. or full disclosure regulations came today from the usually very optimistic CEO of Cypress Semiconductor, T.J. Rogers, who stated that “business conditions have not materially improved in the market segments that we serve” and went on to say that the WAN or wide area network is “ practically dead”. The WAN represents 50% of revenue. Roadway Corp., the transportation holding company, said it expects its second quarter profit to fall 60 to 70% from a year ago as it feels the pinch of the protracted economic downturn. Taking into consideration the various strong signs of deflation we’ve discussed many times in the daily comments such as record debt levels, falling commodities, and consumer spending and capital expenditures stretched to unsustainable limits, we believe the deflationary process has started. These independent corporate statements, along with disarray at the Fed, confirm what we believe is the beginning of a deflationary economic environment. One we haven’t witnessed since the Great Depression in this country or 1989 in Japan. >>