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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: dvdw© who wrote (1788)	5/24/2003 11:11:45 AM
From: MulhollandDrive	Read Replies (1) \| Respond to of 4912

"demand starts with expanding production and lowering costs" ?? i think the operative word in your assumption is "starts" i would counter that and suggest in some cases, yes.... certainly not always. let's take the example of internet routers. with the creation of the internet...new technology fosters new demand...we have no disagreement on this point.. but that very same new technology also spurred a tremendous amount of malinvestment of capital.... and subsequent oversupply relative to demand if you think there can be no oversupply or glut of production relative to demand, look at the charges on balance sheets that were taken for unsold inventory at industry leader, CSCO. now granted, that oversupply can create a new "demand" and one could even argue some new employment in niche markets....for a company such as EBAY. so we now have the ability to bid for excess routers in the supply chain online..."new demand" but did ebay really create a new demand for routers or is it shift of a distribution of existing demand (considering that one market will affect another, you could argue also argue that this new market , the ability to bid for excess inventory of routers on ebay, hurts the traditional resellers and ultimately net job loss) i submit that the malinvested capital (i am differentiating between creation of supply bore out of what we saw as almost unbridled speculation credit induced "investment" in the 90's and rational deployment of venture capital) that created the "boom" in internet routers also created the "bust" whereby liquidation exerts deflationary pressure...and a "buyers market". so where did that new demand go? why are prices being cut, technology commoditized? quite simply we still have more capacity to produce than aggregate demand, if that were not true, you would not be seeing net job loss. even AG in his most recent testimony admitted that since hard currency was abandoned the possibility for sustained deflation (citing japan) was not fully understood or even anticipated, and actually seemed to be uncertain as to how central banks would be able to circumvent such a situation...at the same time he did indicate a big part of the japan economic 'sickness' was exacerbated by deeply ingrained cultural biases toward saving face....which we've all heard and has some validity. we seem to be quick to point out the cultural difference as the mechanism that will save us from japan's sustained economic malaise, but in truth i think we (at least in some areas) have our own version of economic "denial"....especially when it comes to industry deemed "too big to fail" (thinking specifically of federal intervention in the airline industry, attempting to prop up (no pun intended<g>) failing, nonprofitable entities. the misallocation of investment capital as it results from "easy money" can create what i would call artificial demand meaning unsustainable.... basically a distortion, aka "bubble" ultimately i believe equilibrium will have its way... my hope is that the boom distortion (bubble) and the oversupply that has been and continues to be liquidated. (the bust that follows)..has not created a structural, pernicious unemployment situation rather than a cyclical one. because that could indeed produce a deflationary downward spiral. i believe the jury is still out on how our own "nonperforming investments" ultimately resolve.