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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Perspective who wrote (154796)	3/6/2002 1:38:28 PM
From: Rarebird	Read Replies (3) \| Respond to of 436258

I have a different take on the future of these markets. If there was no recession, the first dip is coming, and if there was, prepare for the second dip, which should be a little more painful. I have a decidedly different take on the economic data that has been recently released and do not see sustainable economic growth. Interest rates are artificially low, and are putting a polyanna face on this false start. Yes, I am convinced what we are seeing in the most recent economic data is a false start. I have concerns about the level of personal spending and unflinching consumption. First, it removes one of the potential engines of a real rebound as consumer demand is typically pent up, whereas it is unlikely that it could go much higher. Second, low interest rates are making consumers feel as if they are flush with cash. Consumer credit companies are aggressively mailing pre-approved applications for credit cards with no financing on balance transfers and new purchases for an extended period of time. Consumers are saddling themselves with more debt. Low interest rates are making consumers feel rich in another way and also providing the potential for another collapse of the economy. Low interest rates have resulted in low mortgage rates for an extended period of time creating the double prongs of re-financings and new home ownership. Re-financings are allowing consumers to draw equity out of their homes and commit it to the economy in the form of consumer purchases of everything from new wallpaper to XBoxes for the kids as part of the new trend of spending time in the home. I see a Real Estate Bubble. In the late 80’s a real estate bubble bursting led the economy into a recession. It is possible that it may lag the beginning of, or lead us into recession. Housing prices grew at a 7% annualized rate, something which feeds my view that this is a somewhat speculative bubble growing. Overcapacity could spill over into the retail sector as bankruptcies force KMart and potentially other retail chains to shut down or remove stores from less than profitable markets. Moreover, business investment sentiment has not turned. I think that the mass indulgence on the part of both the consumer and corporation, specifically the telecom sector has not and will not be worked off anytime soon. Business investment, the clearest drag on the economy thus far, is not likely to return to the same or close to the same levels of expenditure anytime soon. The reason? There’s nothing else to buy. With a variety of new capacities, these companies need to scrutinize what to do with their capital. I think the massive build-out resulted in a misallocation of capital in many instances. Returns on vested capital were not focused on producing further profits. A whole generation of CEO’s had been managing their stock prices rather than their companies. A glimpse at Enron and Global Crossing, as well as companies all over the place, reveal the amount of compensation that board members receive in stock options. I think it is likely that further bankruptcies from misallocation of investment funds will continue. The federal government(in particular, Treasury Secretary O'Neill) has recently asked Congress to raise the debt ceiling to justify a broad array of new priorities and initiatives greased with a good deal of pork and thinking about taking the war to other countries. U.S. Treasury debt has increased by almost $US 600 Billion in the 4 1/2 years since August 1997. Now, the Treasury needs another $US 750 Billion leeway. The announcement of a debt ceiling increase, when it comes, has the potential to be a financial bombshell. It also has the potential to kick start a Gold BULL market. This would require the Gov't to sell a large number of bonds creating an oversupply of bonds resulting in lower prices and requiring higher yields/interest rates. Such an occurrence would represent one of the most damaging instances of interest rate increases as it would stifle growth while simultaneously increasing corporate and individual debt servicing burdens. I know very few care. All anyone cares about is whether they profit short term. I'm guilty of that too. But the Bush Administration has been politiking very hard for this on Capital Hill and the odds are extremely high that Congress will oblige. Bet on much higher long term interest rates if the debt ceiling gets raised. PS Fundamentals always win out ultimately.