Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: SliderOnTheBlack who wrote (15929)	7/18/2002 7:14:38 PM
From: Crimson Ghost	Respond to of 36161

Slider: My point is that slashing rates could accelerate the market slide if foreigners withdraw capital in large amounts. (to date they have only reduced inflows). Now you could be right about Greenspan doing this. But I doubt it will do much good as long as the US depends so heavily on foreign capital.

To: SliderOnTheBlack who wrote (15929)	7/18/2002 9:38:37 PM
From: Fun-da-Mental#1	Respond to of 36161

Slider, I agree 100% that Greenspan will try to inflate his way out of recession, because that's what he has said in the past his strategy would be. And it makes sense. Stock losses and debt defaults are destroying huge amounts of money every day. By printing more money the Fed is just trying to maintain equilibrium, which is good, except it does not benefit everyone equally. Those who saved their hard earned dollars in the past lose now. Those in a position to borrow billions from the Fed at minimal rates of interest win. Surprise, surprise, right? Guess what is now the largest sector of the economy? www.smartmoney.com/marketmap The financial sector. Banks are bigger than technology, health care, consumer goods, energy, transportation, you name it. That's a sign of a decadent system in my opinion. Not that I want the Visigoths to sack Rome but maybe that kind of thing has to happen once in a while. Fun-da-Mental

To: SliderOnTheBlack who wrote (15929)	7/18/2002 10:12:59 PM
From: patron_anejo_por_favor	Read Replies (3) \| Respond to of 36161

<<He not only must "pump up the volume" - he's going to.>> I agree with you on many things, but not on this. With all due respect, Slider, even though he wants too, he can't. Why? 'Cause banks and other lending institutions are in the $hitter with their rapidly deteriorating loan portfolios, and aren't finding anyone to lend to who's credit worthy (see bottom graph): research.stlouisfed.org Lending has been shunted to the homebuilding segment, which is about to take it in the neck big time due to the consumer pulling it in. He's pushing on a string, debt trapping has already started, it's checkmate and he's done. Therefore, BubbleBoy can print all he want, and lower short term rates all he wants (of course, that has consequences for the dollar and for long term bonds). Without lenders who want to lend and borrowers who are worth the risk, the "money" will just sit in the vault, figuratively speaking. I'd also be careful about the airlines here (although LUV will be fine). They may get bailed out, but that's not to say that there equity holders will be made whole. Buy the debt if you're gonna play in that sandbox, it'll benefit bigtime if there's a recovery AND if there's some kind of bailout. Just MHO. Regards Patron

To: SliderOnTheBlack who wrote (15929)	7/18/2002 10:33:01 PM
From: Crimson Ghost	Read Replies (1) \| Respond to of 36161

Steve Saville on US "Deflation". - 17 July, 2002 Erring on the side of inflation The consensus view at the moment is that excessive monetary stimulus can easily be taken back later therefore the Fed should facilitate the creation of too much money now rather than risk creating too little money. The concern is that if too little money is created then the US will follow the path taken by Japan during the 1990s and experience a decade-long economic slump. The following extract from a report by Deutsche Bank AG Foreign Exchange Research Department reflects this popular thinking: "As a recent Federal Reserve staff study... concluded , when "the risk of deflation is high, (monetary) stimulus should go beyond the levels conventionally implied by baseline forecasts of future inflation and economic activity." While excessive monetary stimulus could always be taken back at a later date if required, if too little stimulus is provided and the economy slips into outright deflation, then it might become quite difficult - both presently and in the future - to pull the economy out of a persistent slump, as the Bank of Japan has experienced in the past decade." So the biggest risk, apparently, is that the US is about to follow in Japan's footsteps and the best way to mitigate this risk is, apparently, massive monetary stimulation. In our opinion the current consensus view incorrectly defines both the problem and the solution to the problem. Here's why. Firstly, if the current consensus view was correct then no economy would ever go through a prolonged period where inflation was a major problem. The central bank could always err by creating excessive monetary stimulus and then, as soon as the inflation started to cause trouble (higher consumer prices and higher long-term interest rates), simply bump-up short-term interest rates a couple of notches and cut the inflation problem off at the knees. Unfortunately, history teaches us that it is not that simple. Secondly, the differences between the situation in the US today and the situation in Japan during the early-1990s are huge and these differences all but guarantee a different outcome. For example, whereas Japan had a strong currency, a current account surplus and a very low money supply growth rate during the first half of the 1990s the US presently has a weak currency, a large current account deficit and a high money supply growth rate. To use a medical analogy, the medicine currently being prescribed for the US is designed to cure the disease that afflicted 1990s' Japan. The US patient, however, is suffering from a different disease and the remedy that might have eased the pain 10 years ago in Japan is not going to work today in the US. In fact, it would probably make things worse because one of the major problems currently facing the US isn't a scarcity of dollars, it is a glut of dollars. There are way too many dollars in the world and yet the proposed cure is to create more dollars. Thirdly, the current US predicament is a consequence of excessive monetary stimulus (although the problem was never correctly diagnosed by the Fed or by the mainstream news media). How could more of what caused the problem possibly be the solution to the problem? Erring on the side of inflation is a risky policy at the best of times, but here we have excessive monetary stimulus being strongly advocated for a country that already has an inflation problem. Over the past several years the US has experienced the invisible kind of inflation (the kind that results in higher asset prices while consumer prices remain quiescent), but there are signs that the inflation has begun to evolve into the visible kind (the kind that results in higher commodity and consumer prices). When the currency is perceived to be losing its purchasing power at an accelerating pace an inflation mentality sets in. Lenders begin to push interest rates higher in anticipation of the accelerated currency depreciation and buyers begin to hoard (companies build-up their inventories and consumers bring-forward their purchases because prices are expected to be higher in the future). The hoarding, in turn, leads to still higher prices and higher interest rates. Once an inflation mentality has been established it has, in the past, taken very aggressive tightening by the central bank - aggressive enough to thrust the economy into a severe recession - to eradicate it. The root of the problem presently faced by the US is that it is not possible to smoothly transition from an economic boom fueled by a massive credit bubble to the next period of sustained economic growth. The excesses of the credit bubble must first be worked off and this is necessarily a very painful process. However, regardless of the fact that a smooth transition is impossible the main reason we continue to forecast a growing US inflation problem over at least the next 12 months is that a smooth transition will continue to be sought by the US Government and monetary authorities.

To: SliderOnTheBlack who wrote (15929)	7/18/2002 11:40:34 PM
From: Jim Willie CB	Respond to of 36161

not that you care, but agreed on fed pump priming two choices: dont pump and risk Japanized deflationary destruction of the entire credit-based economy neither the economy would respond nor would the stock market respond the dollar gets ripped to shreds anyway pump up and watch the dollar continue to decline until the economy perks up the dollar would descend very steadily the risk is that it might take a long stretch of time only trouble, SliderMan.... the bigger challenge is finding a safe avenue to infuse the sloshing capital simply lower rates wont work it MUST be accompanied by liberalized depository reqmts within member regional banks lenders MUST loosen their reqmt, which are tight as a nun's legs now you may be pleased to learn that superstar Greg Weldon advocates the same rate reduction as reported by John Mauldin of Millenium Wave I cannot wait to see Kudlow and Kemp you are dreaming, man gonna be ONeill and Rubin / jim