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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (676)	8/26/1998 9:41:00 PM
From: Freedom Fighter	Read Replies (3) \| Respond to of 1722

Reynolds, >Very nutritious food for thought, Wayne. David Tice in a recent Barron's guest editorial touched on a controversy as old as the beginnings of industrialism: Does the production process generate enough income to buy back the goods and services produced? Or, must consumers and businesses go ever deeper into debt to keep a given economic upcycle on course (in which case, upcycles are inherently self-limiting)? Or, is the increasing debt level of an ongoing expansion only a matter of the tendency of credit standards to be relaxed as the good times roll on? If the latter, then presumably expansions are not necessarily self-limiting.<< I believe that there is wise credit related investment and foolish credit related investment. I believe there is wise consumption borrowing and foolish consumption borrowing. (and lending) I believe there is a relationship between savings, interest rates, and accurate economic calculation. I believe that central bank manipulation of interest rates and lendable reserves through the injection of new money into the system in large quantities can cause significant economic miscalculation and either overinvestment or mal-investment by distorting the free market level of interest rates and loanable money. I believe that central bank and government attempts to prop up foolish investments can cause the problems to accumulate to some degree even if they are successful for several cycles. I believe that people sometimes behave irrationally when times are either very good or very bad for an extended period of time. I believe the act of lending is stimulating in price or income stream to whatever asset or area of the economy is on the receiving end. (stocks, real estate, paintings, semiconducter fabs, anywhere) I believe that most people do not understand value and like to buy whatever is going up and are willing to borrow to buy it. All that being said, I don't think we must have credit booms and busts. I just think we will continue to have them with our current monetary system of easy fractional reserve credit and central bank and government attempts at stabilizing the excesses that result. The longer they don't face the music the worse the final song. In my own investing I spend almost NO time on macro issues except looking at where the excess credit and easy money is flowing. I believe all such income streams and asset values are suspect. History and my results bear that view out. I am like Peter Lynch on macro issues. I believe if you have spent 15 minutes in a year looking at macro issues you have wasted 10 minutes. (five minutes for credit stuff) It is simply not necessary to do so in my view. You can recognize most excesses from a bottom up analysis of the industry you interested in investing in. It makes for interesting albeit heated discussion though. In many cases there are no formulas or rules like mainstream analysis suggests. We are talking about "Human Action".