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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: tradermike_1999 who wrote (21318)	7/16/2002 4:22:26 PM
From: NOW	Respond to of 74559

Fine post!

To: tradermike_1999 who wrote (21318)	7/16/2002 7:34:42 PM
From: patron_anejo_por_favor	Read Replies (1) \| Respond to of 74559

Brilliant post, Mike, and epic quote at the end by our greatest Congressman, Ron Paul. Paul was the ONLY member of Congress who voiced opposition to Greenspan's reckless policies in the late 90's, and the only one until recently who voiced concern over the widespread corporate fraud that has now been shown to be epidemic throughout our economy. I eagerly await Rep. Paul's questioning the Fed Chairman tomorrow...it'll be a LOT harder for Greenspan to toss off a dismissive (if not frankly condescending) rejoinder to Paul's well-crafted and insightful inquiries.

To: tradermike_1999 who wrote (21318)	7/16/2002 8:23:20 PM
From: TobagoJack	Read Replies (2) \| Respond to of 74559

Hi Tradermike, Thanks for the effort and appreciate the result, and just in time, as I was feeling the equity gene stirring before it is time. I have often thought of Hong Kong as a fractal scaled down version of the US, super condensed, and I believe this is what Greenspunky is afraid of and cannot possibly stop: quote.bloomberg.com Chugs, Jay

To: tradermike_1999 who wrote (21318)	7/16/2002 8:54:20 PM
From: Maurice Winn	Read Replies (1) \| Respond to of 74559

There you go again Mike <by the myth of Greenspan I mean the belief that Greenspan will bail out the market and make it go up. People believed this because he bailed out the stock market in 1987, the S&L crisis in the late 1980's, Mexico in 1994, Asia in 1997, International bankers with bad loans in Latin America and Russia in 1998, and the Long Term Capital Management hedge fund in 1998. He has bailed so many people out in the past - and with apparent success - that people assumed that he could do it again and again. And he encouraged this belief. But when that belief ends then the myth of Greenspan will end and that sets the market up for another reason to panic... > Uncle Al has not suggested in the slightest that he has any interest in bailing out crazed investors. He was the one pointing out the risks of irrational exuberance back in 1996. He raised interest rates in a futile effort to extinguish the madness. When the jig was up and the falls were established, he rapidly lowered interest rates in the fastest reduction ever because he knew that there was then great risk of financial implosion. He was doing all he could, by pumping money like a firehose full of fuel and lowering interest rates to near all-time lows, to avoid collapse. He has obviously succeeded. We are now two years into the declines and most shares with little holding them up are nearly at zero [compared with their irrationally exuberant Y2K peaks] though the now gently descending curves suggest there is room for more decline although 95% of the wishful thinking has been extinguished. After two years of tidying up, we are unlikely to see a collapse inside the event horizon leading to a depression and black hole. I have not seen any suggestion that Uncle Al would bail out the share market [other than by the sensible actions he has taken so far, which were to stabilize the financial system and maintain the value of the US$, not to reward shareholders for their foolish decisions]. I have explained why prices rose to irrationally exuberant levels before and that that process requires no increase in money supply, but you seem not to want to understand that, so I'll not belabour the point again, though you repeat again and again the falsehoods against our most great and admirable hero, Uncle Al, who has saved the world from financial implosion. Mqurice

To: tradermike_1999 who wrote (21318)	7/16/2002 9:19:59 PM
From: Maurice Winn	Respond to of 74559

<The stock market is in a bear market and the economy is in a slump for one reason: we are suffering from the unwinding of a speculative bubble that was fueled by Alan Greenspan successive bail out programs on behalf of international bankers who never knew a bad loan when they saw one. > Wrong. The bubble was due to bids spiraling upwards by people ignoring the bottom line. The unwinding is due to selling and bankruptcies due to lack of profits. Mq

To: tradermike_1999 who wrote (21318)	7/16/2002 9:24:52 PM
From: Maurice Winn	Respond to of 74559

<That is why we the current account deficit has exploded and the United States is now experiencing a dollar crisis. > There is no dollar crisis. It's just gone back to where it was 3 years ago [in Kiwi$]. The Big Mac index and other trading values suggest the dollar was overvalued. With WAT, steel tariffs, farm subsidies, Microsoft punishment and other silly economic decisions by Bush and co [against our great and wonderful hero's suggestions], it's not surprising that the US$ has lost a bit of allure. It might go another 20% too. No big deal. That's well within moves of the past 18 years. Mqurice

To: tradermike_1999 who wrote (21318)	7/16/2002 9:30:41 PM
From: Maurice Winn	Respond to of 74559

No he didn't: <Last year he spoke to the Congress after September 11th and lied to you when he told you that the economy was in recovery until the terrorist attacks. He blamed the recession on terrorism even though it really began almost a year earlier in the Fall of 2000 when corporate investment spending went negative > He had spent 9 months of frenetic financial stimulation before 911 and merely said that things seemed to be steadying up. He did not lie. Please quote the lie. Directly, not paraphrased. He then, correctly, pointed out that the terrorist attack knocked things sideways [sales dropped substantially after the attack and sharemarkets reflected the economic worries]. He didn't blame the economic worries solely on 911 and the WAT but pointed out that those contributed to the delayed recovery, obviously enough, to anyone who was aware of the drama following the attack [attacks if claiming insurance]. Mqurice

To: tradermike_1999 who wrote (21318)	7/16/2002 9:34:28 PM
From: Maurice Winn	Respond to of 74559

As Jay and our great idol rightly pointed out, it isn't the laws which keep things good [the USA constitution in Liberia and Zimbabwe will not reduce Mugabe's mania] it's Asian Values. Uncle Al: <...Although business transactions are governed by laws and contracts, if even a modest fraction of those transactions had to be adjudicated, our courts would be swamped into immobility. Thus, our market system depends critically on trust--trust in the word of our colleagues and trust in the word of those with whom we do business. Falsification and fraud are highly destructive to free-market capitalism and, more broadly, to the underpinnings of our society." > He certainly knows what makes things tick. It's Asian Values. Mq

To: tradermike_1999 who wrote (21318)	7/16/2002 9:42:21 PM
From: Maurice Winn	Respond to of 74559

Alan Green$pan again: <At root was the rapid enlargement of stock market capitalizations in the latter part of the 1990s that arguably engendered an outsized increase in opportunities for avarice. An infectious greed seemed to grip much of our business community. > Our hero rightly puts his finger on the problem. The swindling was tiny by comparison with the scale of irrational exuberance. When the tide went out, the greed was shown to be of vast proportions in comparison with what was left [nothing in many cases]. When rabid shareholders need figures to burn at the stake, the lack of corporate cover shows the guilty and there are plenty of them. When times were rock and rolling, shareholders didn't care, or considered management swindling fair payment [more or less]. Already Alan is warning us NOT to repeat the irrational exuberance. He will back these words with interest rate increases as soon as he feels confident enough that the market clearing is more or less complete <But even if the worst is over, history cautions us that memories fade. Thus, it is incumbent upon us to apply the lessons of this recent period to inhibit any recurrence in the future."> The first interest rate rise will perhaps be accompanied by a rapid stock market rise as people think it an indication that the panic is over and to not miss out on the boom. The rise in interest rates will be rapid. House owners will not be enthralled. Car sales will drop. Mqurice

To: tradermike_1999 who wrote (21318)	7/16/2002 9:46:28 PM
From: Maurice Winn	Respond to of 74559

<None of these things would have happened if the speculative bubble wasn't created and it was created by Greenspan wild bail outs needed low interest rates and open monetary spigots. He is a total liar and the actions of overseas investors last night in response to a Greenspan rumor proved that people are beginning to lose confidence in him. This process will pickup over the next few days and cause the market to dump hard again and bring a real panic low.> Wrong, wrong, wrong. Bidding mania caused the huge market caps. He doesn't lie. I'm an overseas investor and I retain confidence in Uncle Al [though GeorgeW and sidekicks cause me concern]. Well, we'll soon see if there is a real panic low in the next few days. I'm hopeful because I'm waiting to go shopping, but think it'll take more than a few days to reach the lows that'll make me comfortable to go shopping in a big way. Hooray for Uncle Al, Mqurice

To: tradermike_1999 who wrote (21318)	7/16/2002 10:05:52 PM
From: Maurice Winn	Read Replies (1) \| Respond to of 74559

Ron Paul, the Congressman, obviously has limited understanding of the processes of irrational exuberance. <"Second, we do know why financial bubbles occur, and we know from history that they are routinely associated with speculation, excessive debt, wild promises, greed, lying, and cheating. These problems were described by quite a few observers as the problems were developing throughout the 90s, but the warnings were ignored for one reason. Everybody was making a killing and no one cared, and those who were reminded of history were reassured by the Fed Chairman that "this time" a new economic era had arrived and not to worry. Productivity increases, it was said, could explain it all." "But now we know that's just not so. Speculative bubbles and all that we've been witnessing are a consequence of huge amounts of easy credit, created out of thin air by the Federal Reserve. We've had essentially no savings, which is one of the most significant driving forces in capitalism. The illusion created by low interest rates perpetuates the bubble and all the bad stuff that goes along with it. And that's not a fault of capitalism. We are dealing with a system of inflationism and interventionism that always produces a bubble economy that must end badly." > He repeats the silly idea that credit expansion creates bubbles. We should therefore now be in a giant bubble, but guess what, we aren't. The cause of bubbles is very simply irrationally exuberant bidding wars, based on excessive hope and wishful thinking. Credit, speculation, lying, cheating, theft and other non-Asian values soon appear in the feeding frenzy, but they are not the causes of the frenzy. Lenders, not surprisingly, are willing to lend to cash in on the irrational exuberance. People around the world bought in, bidding the US$ up to do so. There is no illusion created by low interest rates. Interest rates are a supply and demand balance - too low and people will not lend but will spend. After a while, interest rates will rise as borrowing increases again and the economy recovers. But right now, I'm not borrowing [because I don't want to] and neither is Worldcom [because nobody will lend to them]. There is some market clearing still to be done. Ron Paul is out of touch, a day late and a dollar short. <"If we were to choose freedom and capitalism, we would restore our dollar to a commodity or a gold standard. Federal spending would be reduced, income taxes would be lowered, and no taxes would be levied upon savings, dividends, and capital gains. Regulations would be reduced, special-interest subsidies would be stopped, and no protectionist measures would be permitted. Our foreign policy would change, and we would bring our troops home." > Good grief, he wants to take the USA back to the stone age and Aztec incantations around gold. What a vast waste of resources to dig gold up only to bury it again at Fort Knox. No wonder the USA is dropping in value with people like him at the helm. A lot of people around the world would be quite happy for USA soldiers to go home. But I don't think we'll see that any time soon. An empire can't run by remote control. He does make some good points on 'protectionist' measures, excessive regulation, subsidies, federal spending reduction. Unfortunately, his good points are ignored. Mqurice

To: tradermike_1999 who wrote (21318)	7/17/2002 7:37:01 AM
From: Joe Copia	Respond to of 74559

Not being an accountant (thanks God), I recall Greenspan stating that in his view, it is quite alright for a Company to keep 3-4 different sets of books. Is that not what Al Capone et al did? I cannot imagine keeping 2 joint checkbooks, but only showing my wife the "poor" checkbook.

To: tradermike_1999 who wrote (21318)	7/25/2002 12:41:17 AM
From: $Mogul	Respond to of 74559

The Dow Is Down 56k (3rd from the bottom) twistedtunes.com

To: tradermike_1999 who wrote (21318)	7/28/2002 1:35:36 AM
From: paul_philp	Read Replies (4) \| Respond to of 74559

Mike, For your entertainment only, this is a column I wrote expounding the joys of bubbles. More importantly, we need them to build shared infrastructures and to advance 'radical' technologies so they are ready for commercialization. Have a chuckle and remember I have reading about the past technology bubbles most of this year. I appreciation the intelligence on this board and welcome their feedback. I'll wear eKevlar, jic. Paul ======================================================= The economic bears believe that the economy is headed into a long and difficult recession. In their minds, we must pay a price for the economic boom and the bust will match the length and magnitude of the boom. They assume the economic boom and the Internet bubble was a terrible mistake, caused by misguided monetary and fiscal policies. This argument misses the core functioning of the American economy: it is not simply cyclical but it is dynamic - always moving forward into the future. Far from a policy mistake, the technology bubble was a necessary, normal and healthy event in the progress of the economy. In order to analyze bubbles we must identify the type of the bubble. There are three types of bubbles: - asset bubbles - technology bubbles - structural instability bubbles Asset bubbles are when the price of a particular class of asset uncouples from it's economic value and rises to very high levels, driven by an investment mania. The infamous Dutch Tulip Bulb bubble is an example. The Japanese land bubble in the '80's is another. The key is that these bubbles leave nothing of sustained economic value behind. This is the type of bubble the Austrian school of economic analysis describes. Technology bubbles happen when a radical technology emerges that has the potential to transform the economy, society and politics. The bubble / crash itself is driven by exactly the same mania that drive asset bubbles. The difference is, at the end of the bubble there is much left behind (technology, knowledge, social practices, infrastructure) that has economic value. Technology bubbles increase the wealth creating capacity of the economy. Structural instability bubbles happen when non-economic events impact an industry that cannot absorb the shock. An example of this is the oil services industry. There is instability because of the operations of OPEC and the political instability of the region. This can cause oil prices to rise/fall with no underlying increase/decrease in demand. The DRAM industry has had structural instability bubbles as well. I suspect that the US S&L bubble was like this as well. Not all bubbles are alike. However, they are all driven by investment manias so the last half of the bubble and the whole crash all look very similar. It is what happens after the bubble where the type of bubble matters. Technology bubbles are good for the economy. The fact that 12 of the 14 technology bubbles since the Industrial Revolution have happened in America is not a coincidence and should be celebrated. It is often claimed that turns in the stock market are early predictors of booms and recessions. In much the same way, technology bubbles are early indicators of radical transformations in the economy, society and politics. Each of the 14 technology bubbles I reviewed led to significant changes in the way societies operate. Each bubble ultimately led to an increase in the standard of living for that society. There are three dynamics underneath the formation of technology bubbles: - the new technology is radical, it operates at the foundations of the economy and society; - no one knows how to apply the new technology profitably; and, - a shared infrastructure is required. Two other things must be true - the economy is healthy and interest rates and inflation are low. If you put these five ingredients together in any country in the world, except the USA, you will get a very slow process that attempts to understand the risk and dangers of the new technology, people will study various deployment strategies to see how the technology might be made profitable, and a few hundred feasibility studies would be undertaken to sort out how to build the shared infrastructure. Mix those ingredients in the USA and all hell breaks lose. Entrepreneurs grab some of the cheap money and start to build. Instead of a careful evaluation of the new technology, a brutal version of Darwinian capitalism is unleashed. I think of the beginning of this period as the start of a marathon with each runner represent one idea about how to move the new technology forward and build the shared infrastructure. The runners are told the course is 26.2 miles long and that water tables have been set up every half mile over the course. Of course, this is too much and some of the runners over-indulge and quit the race. Then the tables are set up a mile apart. This is just fine and all the remaining runners are well hydrated and fed. Then, at mile 13, a cruel joke is played on the runners. No more water tables for the rest of the course. Sorry. The runners start to drop out the race rapidly. At the end of the race, the only runners left are the ones that were strong enough to stay the course. It is a giant experiment. At the end of the experiment there are several outcomes. The best technologies are left standing. The holes in the technology have been fixed. A few companies have figured out how to use the technology to make money AND, this is the most important, the shared infrastructure is built. This is important and it happens to some degree in every technology bubble. The fact is, that there is never a sufficient economic justification for building the shared infrastructure. The capital required to build and maintain the canals, railroads, telegraph, road system, hydro grids, rocket pads, satellite tracking, TV and radio infrastructure - never pay back their invested capital even though the infrastructure is crucial for the success of the technology. It seems that American capitalism has found an accelerated and efficient method to quickly mature new radical technologies and build the shared infrastructure needed to make the technology productive. This process is far from rare. It has happened at least 12 times since 1840, about once every 15 years. Bubbles are not all the same magnitude; the railways and the Internet were the two largest, by far. Bubbles build the shared infrastructure needed to make radical technologies profitable when there is no economic incentive for any group of investors to build that infrastructure. The economic pay back begins at the bottom of the crash, when entrepreneurial businesses start applying the technology and infrastructure to make their businesses orders of magnitude more productive. Who knew when the railway was being built that Mr. Sears would start selling household goods through the stationmasters at the new railway stops. Business picked up to the point that he needed to print a catalogue to help them keep track of the merchandise. Who new when TV was first invented that it would be the final piece in the mass production value chain. The ability to communicate directly to a mass market and convey the message of your product was essential for starting the mass production boom of the '50's and '60's. The economic capability - the wealth creating capability - left behind after technology bubbles is awesome. All that is needed is for the entrepreneur and innovator to apply them and transform their industries. Bubbles aren't pretty but they work. People talk about the Internet Revolution or the Information Revolution. Both are very limited interpretations. As Peter Ducker continues to remind us, we are at the crux of the Knowledge Revolution just as the railways were the crux of the Industrial Revolution. The 'business mistakes' of the past seven years were not mistakes at all. We have not been left with an over-capacity of fiber optic networks that we need to burn off. We were left with a shared infrastructure that we are just know learning how to use. As always, Schumpeter's Gales of Creative Destruction are blowing through the economy moving capital for unproductive assets and processes to more productive ones. We are just at the beginning of the revolution. Please fasten your seats belts and keep your hearts and minds wide open. It will be one heck of a ride.