Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Jyoti sharma who wrote (13403)	1/25/1998 9:53:00 AM
From: tekgk	Read Replies (1) \| Respond to of 18056

The LA time article writes: >> Today, if you pay no attention to the political feeding frenzy going on inside the Washington Beltway, you can be quite optimistic about the country's future. The author makes the same mistake that most people make and assume that financial markets and the economy move in lock step. Although they are clearly related and linked, they diverge about 2-3 time each century. 1929 was one such occasion and I believe that 1998 might be another such time (BWDIK). Below is an interesting quote to ponder - I forget where I got it but I checked the stats on one of the fed sites and found it to be entirely accurate. I am not one of those people that believes in a repeat in 29. History never repeats it self exactly, but I believe that economies and financial markets can and do diverge on occasion and that such times are dangerous to one's economic well being and to the political and military stability of the world. I am especially worried about Indonesia. It looks like things are spinning out of control. The Australian Financial times article last week describing Australian military evacuation planning complete with naval and air task forces was particularly frightening. Indonesia is the worlds fourth or fifth most populous country and the worlds largest Muslim country. A resurgence of Anti-Americanism could easily be ignited out of this whole mess. Inspired terrorists are dangerous creatures who do not respect international borders and are not dissuaded by our large scale military power. IMHO. For twelve months the growth in nominal gross domestic product has been 6.2 percent and, thanks to a Consumer Price Index that averaged exactly 0.0 percent, the real gross domestic product also grew 6.2 percent. Industrial output soared, up a whopping 11.5 percent during the last four quarters, yet did not set off inflation. With unemployment down to 3.8 percent, the prime rate steady at a relatively modest 5.8 percent (and is not likely to rise as long as inflation stays so low). The budget deficit is vanishing on its own and there may even be a surplus. You may think you've heard all those tantalizing numbers again and again in the last few weeks, but they're not what you think. Those statistics are from September, 1929, when the stock market was on the verge of a devastating crash. The subsequent bear market took 25 years to recover.

To: Jyoti sharma who wrote (13403)	1/25/1998 10:56:00 AM
From: tekgk	Read Replies (2) \| Respond to of 18056

The post article makes the assumption that buy and hold always works out in the long term. This idea is not quite as true as the writer imagines. For an older person or someone with health problems who does not expect to live more than 25 years investing the stock market may not be the best idea at this time. In constant currency units there were three declines in this century lasting 12 years or longer and recovery back to the peak took an average of 25 years. Although this century has been one of rising stock markets in the US even in constant currency units when viewed from a > 1/4 century time frame the same is not true for maturing economies in general. An example to consider is France: In real terms, the stock market index for France is 45% below its 1916 peak. Another fine example is Italy; if you invested in Italy and reinvested all dividends for the past century and paid appropriate taxes not only would you have lost all of your money (constant currency units) but you would have found that it cost you to participate in that market. Do I believe that we are a France or Italy? NO, but the mindless assumption that markets always go up is stupid. There are some tell tail signs that we are a maturing economy that is going to eventually destroy it's currency. Since 1942 we have devalued the dollar by about 92%. This was during times of strong growth in an economy that was not burdened by large government and fiscally unsound social programs. We are currently squandering excess social security payments on current consumption. As the baby boom reaches retirement and the surplus turns into a deficit, the government will pay in devalued currency units. I don't believe that any other solution is politically possible. The resulting losses in the markets will be almost as horrendous as Italy. Since the 30 year bond pays almost the same interest as a short term T-Bill one has to assume that the average investor believes that there is no risk in the US for at least the next 30 years. I wonder where these people think the trillions needed to pay retirement benefits will come? I know - the stock market will continue to rise at 30% rate and we will all be billionaires and won't care. -g- Latest data from the fed: MONEY STOCK AND DEBT MEASURES (seasonally adjusted annual rates) Past three months M3 10.0% Kind of brisk for an economy growing at a 2-3% rate BWDIK.