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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: paul lin who wrote (9700)	11/26/1997 5:48:00 PM
From: RetiredNow	Read Replies (1) \| Respond to of 97611

Paul, <why is deflation good for the US economy> I can answer that one. If we are talking about depreciation of the US dollar, then it is not good for everybody. It's good for exporters, so it's good for companies like Compaq who are trying to sell goods abroad because as our dollar weakens with respect to foreign currencies, foreigners can buy more US goods. However, it's bad for importers, because our dollars buy less foreign goods. Therefore, it could affect Compaq's costs since our currency will buy less of the components that are manufactured abroad. Just my 2 cents.

To: paul lin who wrote (9700)	11/27/1997 7:43:00 AM
From: ed	Read Replies (2) \| Respond to of 97611

To understand why deflation is good for economy, you have to understand what will cause deflation. Traditionally speaking, supply and demand decided inflation or inflation, deflation or inflation may not all be bad or good for the economy, it all depends on what type of deflation or inflation it is. Since you are asking about deflation, I will discuss about deflation first. Cause of deflation: 1) More suppliers, productivity is not increased, market size is not increased accordingly or even shrunk !!! More suppliers compete for the limitted market, even at the cost of loss. This is not good for the suppliers, and some weak ones will eventually be out of the market. So, this type of deflation is bad for the economy, but it is also good for the economy, because companies will spend more money on R&D to improve the productivity, and eventually, only the strongest ones can survive and be more efficient ! Those who can not increase the productivity can only squeeze the salary of their employee, and reduce the living standard further. As the employee are the consumers, whit the consumers having less money to consume, the economy comes to a real woe, i.e the recession. 2) The cost of manufacturing is reduced as a result of productivity increased, the suppliers transfer the savings in production to consumers so that more people can afford the products and the market size expands significantly.With this type of deflation, the suppliers' profit margin is not only maintain as a result of the increase in productivity, but the total revenues are also increased as a result market expansion. The people's living standard is also lift , because with the same salary the buying power is increased. This is what happening now in the PC industry. On the supplier side, the profit margin and total revenues both increased. On the consumer side, as PCs getting cheaper, more people can afford PC, and are planning to buy PCs . 3) Imported deflation: As US dollar appreciated, one dollar can buy more.So the price of Imported goods is cheaper, this is called imported deflation.This may not hurt the US industry, since the industry of the S.E.Asia is quite different than that of US and they are not compete with each other(Auto may be different).With dollar's appreciation against the S.E.Asian currency, it only means the imported consumer goods from S.E. Asian is cheaper, and people's living standard got improved. However, for the exporters of S.E.Asia, they have to work harder and export more to gain the same amount of dollars as before the currency fluctuation. Since the exported goods of US to the S.E.Asia are most high Tech products and there is no replacements, the S>E>Asian countries have no choice but continues importing from US if they want to improve their productivities and build up industries at whatever cost. The current and comming deflation were caused by bothe factor 2) and 3), that is why I said that deflation is good for the US economy. The federal reserve now has the room to reduce the interest rate without triggering the inflation, but reduce the capital cost for US companies to balance out the effect of currency appreciation on dollars. Do you think this is good for the economy, as well as for the US stock market in 1998 and thereafter ?????????????????????