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

To: Dug who wrote (14715)	3/8/1998 2:18:00 PM
From: Zeev Hed	Respond to of 18056

Dug, your last post is a "pageful" alright (VBG). Let me address just two points. First, inflation, as I understand it, the government is trying to prove that inflation rate is actually overstated by about 1% (of course if they win, less load on the Social Security system and those federal employees and others pegged to inflation). In any event, looking forward, whatever inflationary pressures we might have in our service sectors will be balanced and possibly negated by the imported deflation from SEA. As for interest rates, I think that AG is maintaining these artificially high (relative to the inflationary expectations) and for good reasons. In the event that a massive recession (or the threat of such an event) is imported from SEA, he wants to make sure that he has enough ammunitions on hand to use monetary stimulus to pull us out from such a nose dive. Such a nose dive will have negative impacts on the deficit and since we are in a "more or less" balanced budget situation, we'll want to keep it this way. Finally the bonds. O believe there is actually a shortage of US bonds in the market and it is fortuitous that this shortage is being well supplied by the Japanese exercise of repatriating their dollars holding. I have gone over this argument with Tek before on this thread and while we may differ on the exact numbers our national debt is increasing at a smaller rate than our interest payment on that national debt, creating the more money wanting to roll over into bonds than the money the government actually needs. So, long term, if we do not sink into a recession here, the long bond will come back down, IMHO. Zeev