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To: MythMan who wrote (194900)	10/2/2002 7:49:19 PM
From: orkrious	Read Replies (1) \| Respond to of 436258

Great email written to Richard Russell and posted on his web site Subject: Understanding WHY this Bear Market is different Hi, It struck me that many people will be looking for an equity market bottom around about now because they don't really understand WHY this Bear Market is different. It is different PRIMARILY because underlying economic activity can no longer be stimulated by monetary or fiscal means at this point in time. Markets have become saturated, and even if you offer zero interest loans people cannot drive more than one car at a time, and they still have to pay back the capital value of the car loan. Even if you charge 0% on housing mortgage rates, people still have to have the income to pay back the capital value of the housing loan (on a house price which has risen because the buyer could afford to pay more). Even if you sell a T shirt for $1, there is a limit to the number of T shirts a person needs. What has been happening is that middle class people have been TRADING UP because easy money and low interest rates have facilitated the purchase of bigger and better cars and houses (not more). This is what caused the housing bubble. House "prices" have been rising, and average car "prices" have been rising as middle class people have shifted from compact cars to 4 wheel drives (as an example) Working class people who previously could not afford to buy new cars and houses now own them (more were sold), but there is now a surplus of rental accommodation, and the second hand car market has gone to hell (I was recently offered $4,000 trade in on my SAAB 9000 that cost me $55,000. I would be happy to BUY the car at around $20,000 given its current condition, and a new set of tyres cost me $400 - or 10% of what I was offered on the whole piece of sophisticated machinery, that is still working perfectly). It is different, SECONDARILY because notwithstanding the fact that markets have reached saturation, banks needed to continue putting money out the door and so, facilitated by easy finance, manufacturing capacity that was WAY in excess of what the market could absorb was put on line. As a result, we are facing a "double whammy" problem. Not only are markets saturated, but manufacturers have a relatively monstrous capacity to supply what is now a waning demand. We have already begun to see the consequences of this as producer prices have begun to fall for the first time in decades. It is different THIRDLY, because all the debt that was built up to facilitate the "wild binge" in consumption of fancy cars and upgrading of houses by ordinary people, and purchase of new cars and houses by people who would not have been able to afford to buy them if "normal" credit assessment criteria had been applied - all this debt now has to be repaid. THE 30 YEAR PARTY IS OVER, AND THE HANGOVER NEEDS TO BE WORKED OFF. People, we need to understand that there is NO WAY that the equity markets have reached bottom. Price/Earnings ratios are still factoring in growth which the above three reasons demonstrate DOES NOT HAVE A SNOWBALLS HOPE IN HELL of materializing. Price/Earnings ratios WILL fall to bring the financial world back to reality (and probably will also overshoot). For years I have been watching the insanity building, and the markets are now providing evidence that the insanity is unsustainable. This situation will not reverse itself, it will take years to rectify (maybe upwards of a decade) - and the politicians have run out of "wriggle room". This is PRIMARILY why we are seeing an outbreak of hostilities world-wide. The politicians have created a set of unrealistic expectations in their various constituencies, which HAVE NO HOPE OF BEING SATISFIED. By way of example, what is happening in South Africa can only lead to a disastrous outcome given that black aspirations are totally "off the wall" as a result of promises made by their leaders. By way of example, Yassir Arafat's constituency absolutely believes that it is entitled to Jerusalem. Sharon's constituency absolutely believes that it is entitled to Jerusalem. The living standards of both constituencies are falling, giving rise to a shortening of tempers and an increase in a feeling of despair in all constituencies. "Hatred" of one side for the other is too easy an explanation. What caused this hatred? It was a build up of unrealistic expectations on both sides - partly caused by politicians, and partly by religious leaders. So what is a politician to do under these circumstances? Obviously, he pounds the drums of war and beats his constituency into a state of frenzy. It's not rocket science. Its a function of people mindlessly accepting what Community Leaders promise is possible in order to get what THEY want. "A country gets the Government it deserves".