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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: peter michaelson who wrote (13507)	9/5/1998 10:41:00 PM
From: Phil(bullrider)	Read Replies (1) \| Respond to of 18691

peter, Why do you think that if people put more money in the bank (cash) and less in mutual funds, that it will result in reduced spending on goods and services. They are still saving, only in different ways. I may have read your message incorrectly, if so I am sorry. Please explain, Phil

To: peter michaelson who wrote (13507)	9/6/1998 8:47:00 AM
From: Kip518	Respond to of 18691

Peter, you wrote The economic theory I subscribe to says that this decline in market values will result in a rise in the savings rate as people will not rely on their market holdings to be their savings. A rise in the savings rate (which has been historically low in recent years)means less spending and therefore less corporate profits and therefore even lower market valuations. Moving money from market investments to savings may appease the worried investor and, as you said reduce corporate profits. But, ironically, this move would be exactly what would be needed to help refuel the economy after the stock market downturn. Greenspan, in his Berkeley speech, said: We should not become complacent, however. To be sure, the sharp increases in the stock market have boosted household net worth. But while capital gains increase the value of existing assets, they do not directly create the resources needed for investment in new physical facilities. Only saving out of income can do that. bog.frb.fed.us