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

To: Taikun who wrote (51299)	6/28/2004 10:00:07 PM
From: Tadsamillionaire	Respond to of 74559

Spinning Financial Illusions --The Story of Bubblenomics A speech presented at Fraser Management’s The Contrary Opinion Forum (Sept 29-Oct 1, 1999) By Bill Fleckenstein What is a bubble? Webster’s New World Dictionary defines bubble as: A film of liquid forming a ball around air or gas. A transparent dome. A plausible scheme that proves worthless. Unfortunately, what has transpired over the last five years in the financial markets has been a bubble. While the entire market obviously won’t prove to be worthless, the declines in store for most securities will be tremendous. I would like to begin today by describing the various factors that collectively have created the financial environment in which we currently find ourselves. I shall then demonstrate that this is a bubble by comparing today to the late 1920s and offer some thoughts as to the potential severity of the aftermath of this bubble. Lastly, I will make a stab at guessing what might pop it. The seeds of this bubble were sewn way back in 1980 when Congress passed the Depository Institutions Deregulation and Monetary Control Act calling for the phasing out of Regulation Q, which allowed financial institutions to compete with money market funds. A piece of that legislation was financial cancer: raising the insured deposit maximum to $100,000.00. That seemingly innocuous change (thank you Fernand St. Germain) spawned “brokered deposits,” the primary driver of the reckless lending practices of the 1980s. Money sought out the highest bidder with no regard as to how it might be used. As a result, we witnessed the funding of overleveraged LBOs and the overbuilding of real estate long after the 1986 Tax Act made it uneconomical to speculate in property. It is hard to overstate the significance of this legislation in creating the excesses of the 1980s, which set the stage for the even greater excesses of the 1990s. moneycentral.msn.com