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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Skeeter Bug who wrote (26522)	3/10/1998 8:09:00 AM
From: Earlie	Respond to of 132070

SB: Material sent. With respect to interest rates, your guess is better than mine. For what it's worth, I think it depends on what happens on April 1 in Japan. If the Japanese go through with "deregulation" of their financial sector (which appears to still be on track, but which is and will cost them a great deal of hardship in their small and intermediate business sectors, given the massive culling of loans currently taking place), then their interest rates will be forced to rise (as Japanese savers will be able to convert to other currencies and endeavour to capture higher returns). Incidentally, the Japanese are currently stripping their banks even as we discuss the matter, and placing a significant percentage of the pulled funds in U.S. bank branches. I suspect Greenspan will lower U.S. rates to reduce the difference and help stem the tide of Yen converting to dollars. He is currently flooding the U.S. with liquidity anyway, so it wouldn't hurt his current policy. Personally, I think Greenspan is frightened to death of a market cave-in. The whole world now depends on the U.S. consumer to buy their exports. Unfortunately, the U.S. consumer is effectively "debted out", although he continues to borrow based on his belief that he is wealthy, based on his stock holdings. When this balloon lets go, the U.S. consumer will do exactly what the Japanese consumer has done, he will stop purchasing anything except essentials. he will of course be in much worse shape than his Japanese counterpart, in that the debt levels are historic. The bankruptcy courts, already bulging with record filings, will go ballistic. Anyway, my bet is they go lower, at least for this year. On a related matter, this Japanese "dereg" is another reason why I've been more or less on the sidelines. Obviously I'm a complete bear in terms of my market view (a "forever bear" according to David (g) ), and wouldn't be long a single stock at this time. On the other hand, should the Japanese complete the exercise, a lot of Yen will go looking for higher returns, and you can bet that Wall St. will entice some of it into the tulips. This would truly represent a sweeping of the very last remaining vestiges of money into the market,......which is what markets always endeavour to do. Until the Japanese either do or don't, I'll be an observer, even if it means that I miss part of the current (and long awaited) tech melt. Best, Earlie

To: Skeeter Bug who wrote (26522)	3/10/1998 9:39:00 AM
From: Mike M2	Respond to of 132070

Skeeter, on the question of interest rates. The case for lower rates is based upon slow growth or an economic slowdown which will contain price inflation (cpi & ppi) and the fact that real rates( adjusted for price inflation) are historically high. Others talk about a shortage of bonds -sounds funny with a $5 trillion dollar debt. They point to a balanced budget which isn't balanced. The reduction of the deficit is due to short term financing which lowers interest expense, huge capital gains tax receipts courtesy of the stock mkt bubble, and smoke and mirrors accounting- for example using the excess social security payments to offset general expenditures. The case for higher rates is based upon monetary inflation M3 grew at 11 % last 3 mos. and over 9% last year. One would expect gold to rise and the dollar to fall normally. Supply and demand -the US is dependant on foreigners to buy our debt especially SEA and Japan but they do not appear to be in a condition to continue buying our debt. Our domestic savings rate is inadequate- 3.8% for 1997 the lowest in 58 years according to Fred Hickey. Foreign central bank purchases( esp. SEA) and the carry trade have been major sources of demand for US debt. The carry trade involves high leverage so watch out when it unwinds. The SEA central banks bought US debt to prevent their currencies from appreciating and hurting their export competitiveness but they created bubbles in the process. These comments are just highlights I will post some links to gold-eagle which discuss in greater detail some of these issues. Mike