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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Cary Salsberg who wrote (52479)	9/18/2001 6:58:11 PM
From: Sun Tzu	Read Replies (1) \| Respond to of 70976

There is also an uncertainity associated with the market that has not been quite assessed or priced in, namely what kind of retaliations can be expected from the terrorists. These scenarios can vary from benign, as we had during the war with Iraq, to nightmarish as Chuck Noris played in Invasion USA. I don't think it is possible to assess this yet, but the markets around the world are busy trying to figure it out. ST

To: Cary Salsberg who wrote (52479)	9/18/2001 11:52:19 PM
From: Sam Citron	Respond to of 70976

RE: Economic impact of last week's tragedy Unfortunately I think the costs may be staggering. Far higher, I suspect, than the Gulf War, and this time the Saudis and Kuwaitis will not be the ones to finance it. It's not just the direct costs of losing the 5,000 lives and the buildings and the airplanes and paying for the rescue and cleanup and the disruption that may last for weeks and months, and the likely "retaliation", and the Arab response to our reaction, ad infinitum, as in Israel. There are costs of the removal of the last remaining leg of the economy: consumer confidence. Growth, previously at zero, will now certainly tip into the negative region. There will be rising unemployment in the months ahead, which will require the necessary transfer payments. There will be a massive counterintelligence operation, massive security buildup and an increased defense buildup. These are investments of the non-productive type. In other words dead weight costs. And they will also result in costs associated with additional friction in the economy -- longer delays for passengers and cargo. Disruptions in the supply chain. Good-bye just-in-time inventory management, at least for a while. Goodbye peace dividend. Then there is the important question of who pays and when. Do we fund these additional costs through taxes or do we borrow the money and return to deficit spending and the ugly stagflation of the seventies? Already in the past 2 days yields on 30 year Treasury Bonds have begun to spike. I am not sure today's politicians fully understand the economic implications of all this. I'm not sure investors here fully realize how special the last 20 years have been. When you say, "what we are doing here is determining how many times our money we will make", I believe you may be making an erroneous assumption that is based on realities of a previous era. If interest rates rise, which I am assuming they must in the months and years ahead, PE ratios will be pinched. We will revert to more "normal" PEs and more normal price levels for stocks. PE of 30 will once again be regarded as astronomical. It may take 10 years to double your money rather than the 3 years you may expect. You may have wished you had simply stayed in CDs. I urge you to be more realistic in your expectations of what the next peak in the cycle may look like and how long it may take. An exogenous event has occurred of enormous magnitude, in my opinion. The "model" must be adjusted to reflect it. Sam

To: Cary Salsberg who wrote (52479)	9/19/2001 12:17:53 AM
From: Jacob Snyder	Read Replies (2) \| Respond to of 70976

macro picture: I, too, have been thinking about the economic effects of the recent "exogenous shock", and come to the same conclusion. I think the effect will be to make the economic downturn more V-shaped. I now doubt we get a "disinterest bottom" in stocks, no long period of low prices, low volume, and low volatility. The negative effects, over the next 6 months, from now till Spring/Summer 2002, will be to: 1. decrease consumer confidence and spending 2. decrease international trade 3. decrease capital spending by businesses 4. falling dollar Offsetting this, is: 1. the Fed is stomping on the accelerator. The Fed Funds target rate went down to 3%, but they evidently intervened in the markets to drive it down to 1%, at least temporarily. They are pouring in liquidity, and, just like in the runup to Y2K, a lot of that loose money sloshing around will end up in stocks. 2. speaking of loose money sloshing around, the government is back to it's old tricks: borrow and spend, which is good for the economy (short-term). The Federal stimulus just doubled from $40B to $80B, and looks to go a lot higher. Everybody's got their hand out, from airlines to insurance. The military will get funding for anything they can think of. More moral hazard for the future, more debt for our grandkids to pay back (or make disappear with inflation), but no one is worrying about that any longer. As soon as there is any excuse for it, I expect another 50% rally in the SOX. Almost certainly within the next 6 months. From today's level, that would bring us back to 650. I haven't decided whether I'm going to sell that rally.