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Strategies & Market Trends : Three Amigos Stock Thread -- Ignore unavailable to you. Want to Upgrade?

To: Sergio H who wrote (8403)	9/6/1998 6:24:00 PM
From: James Strauss	Respond to of 29382

Sergio: If you're standing in the path of a roaring freight train you're ok until it hits you... While there can be many arguments for the health of our economy, we are standing in the path of a foreign economic collapse freight train that's heading our way... We can stand in its path and do nothing or move fast now... Even Arnold Schwarzenegger would continue being very healthy until struck by that freight train... Jim

To: Sergio H who wrote (8403)	9/7/1998 11:11:00 PM
From: Hawkmoon	Respond to of 29382

Lower rates?? YES!!!! (and long overdue.) Sergio, Thank you for the invitation to provide my perspective on the issue of lowering interest rates. It has actually been the primary concern of mine in assessing the future short term risk of investing in the stock market. There is little doubt that had the Fed adopted a bias towards reducing rates, much of the turmoil overseas might have not resulted in utter panic. I became worried about our IRA assets in the S&P index in July and switched over to bonds then. The growing recognition of deflation here, inflation overseas, and capital flight to the US dollar suggested constrictions on corporate profitability for multi-national Big Cap stocks seemed to indicate uncertainty and a possible market top. There were convincing cases being made as of last fall suggesting that falling commodity prices and a strengthening dollar, as well the Asia economic turmoil, would eventually affect the US economy. However, in retrospect, I believe monetary policy managers underestimated that impact. I have little doubt that the Fed fully realizes that they have been late in executing a downward bias. I'm hoping that the rally we're seeing in Asian markets over the past two days are indicators that the Fed will act sooner rather than later. Now the question to me is which sectors will benefit most from a downward bias in rates. I have a personal bias towards small caps since I believe their cost of capital is higher and the implact of that cost is more quickly reflected in their operational costs and earnings. Big Caps with extensive overseas exposure will still face the the issue of disfavorable foreign exchange conversion rates and a reduction of US rates will mainly act to hold the line in this discrepancy until overseas economies commence recovery and their currencies restrengthen. However, there are some serious issues still out there including turmoil in Latin America as currency devaluations continue to grip those economies. US companies and the banking sector have considerable exposure there, far more than in Russia. We also have a potential problem in Iran and Afghanistan where they is a slight risk of that face-off impacting oil prices. While oil prices would help oil exporting economies like Mexico, Venuzuela, and Colombia, and Norway, oil importers would be paying higher prices for energy denominated in US dollars, while their currencies are still weak. Finally, I believe the other shoe has yet to fall in China. There has apparently been some 24 Billion in damage suffered from recent floods, the depletion of foreign reserves defending the Hang Seng market, and signs of black market money changers subverting the Yuan. So do we need to lower interest rates?? Absolutely!! The Fed should have suggested a downside bias months ago in order to discourage capital flight to the US from foreign currencies. There has been little evidence of Inflation in the US economy due to the depression of commodity prices overseas and currency devaluations. Anyone looking at the price of gold should have been able to realize that deflation not inflation was the issue in the US economy. They should have realized the the US dollar would become the defacto "gold standard" attracting a flight to quality and undercutting US export competitiveness. Finally, the BS that has continued to be flung around about limited US exposure to certain tumultuous markets has been a ruse by those who an interest in inflating this stock market bubble. Folks were warning about the cascade effects of Asian problems for the past year. There were reports that Russian Oligarchs and organized crime syndicates were forming a Kleptocracy and financing it with IMF funds. There were signs from the depressing price of oil and raw materials that the global economy was going into recession/depression. All of these were signs that policymakers, while not having an easy task, should not have ignored the long-term destabilizing impacts that deflation of prices would have. Now they have act, and do so in a major way. I see rates declining to 4.5% or more by Xmas, depending on which economy becomes the next economic tragedy. That's my opinion, although lengthy, and I appreciate that someone is out her discussing the issue. And since it is my view of the world, I would certainly suggest any constructive criticism reference my analysis. Also, may I suggest that future discussions start game-playing 1999/2000 and how the investing herd will react in anticipation of that problem?? That's my real concern for the intermediate assessment of the market's future. Take care Sergio... I'll bookmark the thread and follow along. Regards, Ron