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

To: Maurice Winn who wrote (64923)	6/17/2005 11:11:14 AM
From: carranza2	Read Replies (1) \| Respond to of 74559

C2, don't worry about deflation. I thought the ostriches were located in Australia, not Kiwiland, Mq. vbg The problem with deflation is that desperately few of us have any first hand experience with its horrific effects. I think it is a risk, certainly not one I would discount. The evidence for deflationary pressures is everywhere, namely, an ongoing and apparently global bubble in real estate in place at the same time inflation is under control coupled with the inability of the world's most powerful central banker to raise real interest rates. Deflationary pressures are also apparent in the bizarre and I think unprecedented reversal of long and short term interest rates in the US. Remember the genesis of the Depression, Mq? Margin debt plus a stock market bubble which fueled consumption followed by bank failures when the Treasury didn't bail out the banks. Today, we are living in a bubble. Our American debt is a national debt reflected in a gigantic trade deficit. Banks, and therefore depositors, are more or less protected, making a wholesale disaster unlikely. However, deflation is still a nasty business, and the ingredients for it to occur are in place. Deflation can be a lot more easily controlled these days than it was during the Great Depression by turning up the money spigot flow from the present "high" to "max" or by other means that depreciate the dollar. However, that brings on a different set of problems. A very ugly storm is gathering, Mq, while folks whistle past the graveyard [my apologies for mixing cliches.] It's the reason I have taken 50% of all stock market investments off the table in favor of cold hard cash, and am thinking of doing more of the same. After all, the stock market has ESP and despite stellar corporate performance, it has not risen past the '01 record. Under "normal" circumstances, we would see it at far higher levels. Having survived the dot.com bubble's bursting, I have no intention of repeating the experience. As Jay says, crisis is our friend.