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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (4887)	10/17/2001 4:48:25 PM
From: John Pitera	Read Replies (1) \| Respond to of 33421

Why do think it is probable that the FED will overshoot in monetary reflation setting up a scenario for inflation? because we're going to be in a world of pain, economic contraction and price weakness as this bear market gets to it's end. We know we're coming out a historic speculative mania and that Valuations are still at extremely high levels. today I had just posted some astute observations by slider Message 16518914 a valid point about the Money Masters getting out of the way of this debacle. I mentioned this before; where Julian Robertson, Soros & Druckenmiller, Vinnik, Shopkorn et al exited & threw in the towel...will make them look alike geniuses; compared to where we will ultimately bottom. As I have mentioned previously: Message 16393457 In my long term Macro Model of the World economy, after the era of financial assets (stocks and bonds) outperform for a number of years, they then go into longer term bear markets, we have a period of economic weakness and generally declining prices of just about all assets, stocks, real estate, hard assets, commodities bonds, etc. some currencies benefit some are hurt). This can last for a few years and in our current cycle could continue into 2003 or so. Then as the Central banks reinflate the economy and stem the deflationary trends (since few people have any interest in deflation, there is a cry for higher prices. As steps are taken to create more liquidity, and expand the monetary aggregates, this means that there is more currency out there, so it will flow to some asset classes, and investors who have been badly burned by tech stocks and stocks in general will go to the latest "smart investment". This smart investment will be what has been doing well the past few years. It always works that way. Why did people buy tech stocks and internet stocks in 1999 and the start of 2000? because they were going up, and there were reasons for them to go up more. I want to elaborate as to why financial assets go into the bear market after a number of years, it's because all macro economic trends go to excess. There are very good fundamental reasons why stocks and bonds do well at the start of their period of price appreciation during the Long Wave in the economy. they are undervalued and have been out of favor for a number of years. But you always see the financial assets, especially stocks become wildly overvalued at the end of their upward cycle. Witness the late 1920's the late 1960's-early 1970's, and the late 1990's. When the speculative forces blow up, much like a supernova or bubble, then the bear market in these plays out. Hard Assets are bid up to excess at times of great commodity inflations, such as 1916-1920, 1974-1980 etc. investors end up misallocating tremendous amounts of capital and create excesses of production, capacity and supply. The money that went into precious metals mining in the 1970's and early 1980's is an example. The overcapacity in oil production by the early 1980's is another excellent example. That leads to the price bust on the other end of the cycle. Crude prices went from 40 in 1980 to around 9.65 by 1986, and Texas had a king sized depression resulting from this. Over the course of history, Fiat currencies and Central banking authorities create inflation to try to alleviate, deflation. We have all heard the hue and cry for the FED to ease rates this past year. And if the economy remains weak, the cry will remain for for money creation until the bigger pain is Inflation. John