Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: Sharp_End_Of_Drill who wrote (92926)	8/1/2001 12:02:28 AM
From: isopatch	Respond to of 95453

<when does it stop, and how?> The hot sector may change in each credit cycle. But the basic pattern is the same. During a long boom, emotional enthusiasm gradually builds until valuations become so excessive that billions and billions of of loans are made unrealistic assumptions. The the economists, industry specialists, accountants and analysts who prepare the reports those assumptions are based upon are prey to the same infectous giddy enthusiasm as everyone else. So, loans thought prudent, later default during the economic contraction that follows. IMHO, one of the biggest myths in the financial and investment world is "objectivity". There is no such thing. If there were, people would be devoid of the powerful emotions that prompt decisions instead of cool headed common sense. In the 70s we had that huge secular capex boom in the patch. When the stocks peaked in 1980, you probably remember projections of $50 even $70/bbl crude a few years out by supposedly savvy industry people, W.S. analyst and many writers in the financial media. Banks used those projections as the basis for their energy lending and the rest, we know. The same exact process just occurred during the past few years with the mega boom and now bust in tech. Like the aftermath from every past boom, the reflation by the Fed during the bust that followed DOESN'T go to the previous boom sector. Excepting periodic minor and localized recoveries, energy continued in a recessionary cycle until the mid 1990s. So indeed, <when does it stop, and how?> At the peak of a boom or bubble WHEN the sector can't absorb any more credit. Then the demand rolls over and fuels the momentum of the down cycle, more and more enterprises see their ability to service debt disappear. Many go under entirely. Even those companies that hang on, essentially "credit dead" as far as the banking system is concerned. Net, net new credit doesn't flow into the sector. In fact, there's a significant net contraction. So when the Fed floods the banking system with liquidity to revive the overall economy, this new liquidiy CAN NOT go into a still contracting sector. Instead the new liquidity (loans) finds it's way to sectors and industries that were either repairing their credit worthiness and couldn't participate in the recent boom AND/OR sectors that only completed the first phase of a longer secular period of appreciation and therefore continue as a fertile ground for new credit placement (and of course the bank profits therefrom<g>). Those are the the kinds of sectors where we want to look for the leadership for the next equity Bull Market. Whew! Iso's outta gas for tonight.<G> Time for some shut eye. The the ole guy needs some juice tomorrow morning to pass the soccer ball around with #1 son and his lady. Wow! And here I though he wasn't listening to me about how to pick em all these years.<lol> Best, Isopatch