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To: Enigma who wrote (10513)	4/23/1998 11:18:00 PM
From: Abner Hosmer	Read Replies (1) \| Respond to of 116762

enigma - Isn't it true in some sense that higher interest rates are inflation, because they add to the cost of goods. It's kind of like giving the economy a small dose of inflation now, to innoculate it against a full-blown case later on. So the theory goes. At what point does a "pre-emptive" strike at inflation become instead the recognition of an inevitable reality, ie that higher rates are inevitable because demand growth is leading to overborrowing, overinvestment, and an unsustainable pace of growth. We are hearing that going forward we are threatened with a wage-price spiral. At the same time, as some have said, the demand for goods is being met by the ever cheaper costs of manufacturing them, due to the globalization of labor, improvements in industrial processes, and the apparent abundance of raw materials. And won't this plus higher wages continue to increase demand? It's a strange world. We contemplate bumping rates to slow the economy because then it does not pay to borrow. In Japan, that has been accomplished by driving rates so low that it does not pay to lend. Tom

To: Enigma who wrote (10513)	4/24/1998 10:44:00 AM
From: Jim McMannis	Read Replies (1) \| Respond to of 116762

In 1987, if I remember correctly, the XAU peaked at about 157 in September. On October 19th, the day of the crash the XAU was actually holding up nicely until noon. Then the XAU dropped like a rock. The crash point was somewhere about 130 but I'd have to look again to get the exact numbers. It' been my contention that there was a slight flight to gold early but it gave way to the reality that the market crash would ultimately be deflationary and not good for gold stocks. There is also speculation that gold stocks were sold to cover losses in other securities. The fact that physical gold held up a lot better than the XAU may lend some creedence to this but I favor the deflation idea. I can give you the exact numbers if need be. Jim