Hi KJC, enjoyed the doom and gloom posts and feel obligated to snuff out the candle flame of hope represented by this article so as to counteract any inclination by anyone to buy on hope.
<<You're supposed to buy stocks when everyone else is running away. In fact,many experts say that stocks could already be bottoming>>
… Are these the same experts who foresaw the Nasdaq dive so far? No, of course not, these are the experts who hope to keep their jobs or extract their nest eggs from the flame.
<<Interest rates. The Federal Reserve cut the key overnight Fed funds rate to3.5% Aug. 21 — the seventh rate cut this year. Lower rates make it cheaperfor consumers and businesses to borrow, which stimulates the economy>>
… Who is borrowing to invest in productive activities? Cheaper debt service in and of itself does not generate productive opportunities, especially given that the downturn is not only inventory driven, but over investment and over capacity driven.
<<The economy typically takes 12 months to react to lower rates, says L. RoyPapp, manager of Papp America Abroad. "We'll feel the effects at thebeginning of the year," Papp says>>
… I thought it was 6-12 months?
<<Savings rates. Lower interest rates also make alternative investments, such as bank CDs and Treasury bills, look less appealing. Money market mutualfunds now have an average 7-day yield of just 3.12%, according toiMoneyNet, which tracks the funds. Currently, $2.1 trillion is cooling its heelsin money funds, up $1.5 billion from last week. Much of that is institutionalmoney that's not going anywhere. But if a fraction moves back to stocks, it could be electric>>
… Cash is the investment of choice during deflation, because the real interest rate, even when nominal interest rate is 0%, is still high.
<<Oil prices. Light sweet crude oil spiked to $32 a barrel Jan. 19. It's down toabout $27 a barrel now. Lower oil prices mean big savings for consumers andbusinesses>>
… Wha, a whopper of a savings. Oil price will go lower still when J6P stop driving his SUV; and given the average age of cars on the road, J6P will not be needing a new car for quite some time, maybe even as long as 6-8 years.
<<Taxes. Most taxpayers will have their 2001 tax rebate soon — as much as$600 per household. All told, that's $40 billion that's moving from thegovernment to consumers — and, the government hopes, to the malls.>>
… Wha, another whopper, of borrowed money and money raided from SS fund, funneled by the government to J6P, to pay down a few months worth of utility bills.
<<Papp points out that earnings comparisons will be getting easier, too. Manycompanies posted record earnings in the first quarter of 2000, so anything lessthan spectacular earnings in the first quarter 2001 looked disappointing. Andon Wall Street, an earnings disappointment usually means a swift trip to thebasement>>
… what record earnings, balanced against what write-downs, resulting in the fact that many companies in fact has been standing still on productive economic activity for the past 5-7 years, but borrowed much to buy back their own and other companies’ over-valued shares.
<<But many companies started reporting lower earnings in the second quarter of 2000. Beating earnings from 12 months ago will get progressively easier formany companies — which should make their earnings gains look better>>
… Great, a comfort to know that companies will be beating zeros and negative numbers. The market, after all, is always forward looking; except when wealth, in the form of equity, debt, spin value, and hope have been blown up to bits.
<<Peter Lynch, former manager of Fidelity Magellan, points out that even though the stock market has performed dismally, housing prices have climbed. For example, the stock market has lost about $4.4 trillion the past 12 months. But home prices are growing at about 5.5% annually, estimates real estatetracker DataQuick Information Systems of LaJolla, Calif. Appreciating homesare adding about $55 billion in value every month>>
… Housing is not a productive asset, especially when not needed or over-valued, and housing cannot keep appreciating in the midst of gradually enveloping gloom and doom.
<<And, says Lynch, things were much worse in the recession of 1990. "Bankswere in awful shape; state and local governments were in horrible shape,"Lynch says>>
… Give it time, and banks will be awful, especially if real estate rise further. Besides, the Japanese banker to the whole world is at decade low point of life, and at least some of what is left of the capital will be pulled away from the fire.
<<Most of all, you have to keep the slowdown in perspective. Recessions typically last 12 to 18 months, and recoveries last 4 to 8 years, he says."You're better off betting on the recovery.">>
... Surely he meant to say “inventory recession” and “investment/debt fueled recovery”. Well, our recession is not only of the inventory nature, and difficult to see investment pickup for either business or consumer.
So, bottom line, the bullish case is false, based on hope and asymmetric logic, and will prove damaging if acted upon.
Chugs, Jay |
