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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: SouthFloridaGuy who wrote (6533)	11/3/2002 2:31:02 PM
From: GraceZ	Read Replies (4) \| Respond to of 306849

The reason you can't tell whether the Fed's actions will lead to inflation or deflation is because you can find lots of evidence for both. You have the CRB in serious up trend, the prices component in the ISM rising and labor suing for higher wages in the middle of what is suppose to be an economic downturn, housing prices rising at a multiple to the official inflation rate while the dollar has clearly topped and is headed down while gold rose out of its 20 year moribund state. OTOH you have prices collapsing in lots of industrial sectors and service sectors due to the falling cost of overseas labor in conjunction with the strong dollar, extremely low inflation in the CPI (yet it has never gone negative) along with a two year downtrend in stock prices. As for debt levels, C&I has been in a serious downtrend for two years. This means bank loans are disappearing or being paid down faster than they are being replaced. Considering that we have a demand based economy which is entirely built on borrowing even a flattening of loan demand feels like a depression. Credit crunches occur when there is too much demand for loans not when there is too much supply. We have a situation of falling demand for loans. If interest rates are rising for certain companies it is because banks are factoring in a perception of higher risk and/or higher inflation expectation. On a company specific basis, companies with little or no debt have a serious advantage over the big dinosaurs who thought the good times would never end and loaded up with debt. When I look for investment candidates I look for companies without debt. The death of those big companies with huge debt will dominate the public psyche while underneath the doom and gloom a cadre of efficient companies will take their place. Meanwhile the overwhelming bearishness will keep their stock prices from developing air pockets. A good stock picker couldn't ask for a better scenario. While your gold investments may in fact work out, I wouldn't dismiss being long stocks here. The worst thing, the very worst thing, you can do is let a bear market turn you into a bear. As the market moves down you need to look for reasons to be bullish and the inverse is true, as a market tops you need to look for reasons to be bearish. Good grief, a look around SI shows that almost everyone does exactly the opposite. Now I'll put on my flame retardant suit. -g-