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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Monty C who wrote (32112)	2/22/2002 8:23:32 AM
From: orkrious	Read Replies (2) \| Respond to of 99280

Fascinating '96 Fed meeting minutes at federalreserve.gov Wish we could get them to join our thread. <g> Excerpt: Lawrence Lindsey 9/24/96 ...But that is not where I am most worried. What worries me more is that our luck is about to run out in the financial markets because of what I would consider a gambler's curse: We have won this long, let us keep the money on the table. You can see early signs of this. It includes real estate appreciation in the Hamptons, Connecticut, and Manhattan. BMW and Mercedes both had their best summer in history in the United States. The IBES earnings expectations survey for 5-year projected earnings hit a 12-year high in August. It indicates that earnings are expected to grow at a rate of a little over 11-1/2 percent per year. Now, if we assume nominal GDP growth of 5-1/2 percent over the same period, this means that NIPA profits will rise from 10.7 percent of national income to 14.3 percent of national income in 2001. Readers of this transcript five years from now can check this fearless prediction: Profits will fall short of this expectation. Unfortunately, optimism is ripe in the markets. Excessive optimism is also necessary to justify current levels of IPO activity and valuations of highly speculative stocks. While it is not so large as to exert undue pressure on the real side of the U.S. economy, this emerging bubble is nonetheless real. AS a survivor of the so-called Massachusetts miracle to which Cathy Minehan referred earlier, I can attest that everyone enjoys an economic party. But the long-term costs of a bubble to the economy and society are potentially great. They include a reduction in the long-term saving rate, a seemingly random redistribution of wealth, and the diversion of scarce financial human capital into the acquisition of wealth. As in the United States in the late 1920s and Japan in the late 1980s. the case for a central bank ultimately to burst that bubble becomes overwhelming. I think it is far better that we do so while the bubble still resembles surface froth and before the bubble carries the economy to stratospheric heights. Whenever we do it, it is going to be painful, however... federalreserve.gov