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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: tekgk who wrote (12033)	12/21/1997 11:12:00 AM
From: tekgk	Read Replies (2) \| Respond to of 18056

The greatest money making opportunities are finding and exploiting a societies greatest lies. The two greatest lies (IMHO) here in the US at this moment are: 1: The budget deficit. The deficit which by the treasuries own numbers is 8.5 times greater than that claimed by the slimy politicians and popular press and double that again if you account for the social security fraud. 2: New Era. We are supposed to be so clever and competitive that we are now exempt form economic cycles. If we are so competitive then why was last months trade deficit just over 11 billion dollars? Why is the deficit growing? Why are we the worlds largest debtor? The answer is very simple - we are not - we are just very lucky. The yen carry trade, Central bank purchases of US paper and foreign private purchases have kept interest rates low. CB purchases are now reversing, which will eventually reverse the private money which will then reverse the carry trade. The 600 billion a year inflows are grinding to a halt. This is the single biggest factor in the last two years of the bull market. This number makes the mutual fund inflows look like chump change. It means that the stock and bond markets won't go up at the 30% pace of the past two years. Investors will be lucky to break even. As the reversal gains momentum ... you can figure it out for yourself. Many argue that the flight to safety will continue forever - my question is just where are the Koreans, Japanese, Indonesians ... going to get the money? I know the money will come from South America ... Africa ... NOT. Who is left except Europe - aren't they trying to establish themselves as an alternate reserve currency? The end result is a bubble where valuations have exceeded fundamentals. The only questions are how fast will it deflate and how will it deflate. From an old post of mine: If you look at the following chart: cpcug.org then look at this one: cpcug.org You will notice that the loss in "value" from 1929-1950 was about the same as the loss in "value" from 1966-1982. In nominal dollar terms the 1929-1950 period looks like a disaster while the 1965-1982 period looks flat, yet in "value" terms they were about the same. What I think this shows is that the FRB can play currency games by "creating liquidity" making a correction look more or less flat in dollar terms. The dollar and anyone holding it lost big time during this period. In both periods there was lots of money to be made betting against stocks and against the dollar. The only difference now is that the US is now only 19.6% of the worlds economy and the worlds largest debtor. While in earlier periods it was the worlds largest creditor and the GDP was over three time larger as percentage of the worlds economy. In the early 60's, 80% of the worlds cars were made by Detroit.