Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Ilaine who wrote (32859)	9/25/1998 1:28:00 PM
From: Skeeter Bug	Respond to of 132070

cobalt, the fed could quite handing out money so fewer dollars chase the same amount of financial assets. btw, the big money correction occurred in lock step with the fed cutting back on m2 (i believe it was m2). hmmmmm.... i'll buy as long as the fed keeps the fix going.... but, if he stops???? in addition, mike pointed out the obvious to me. there isn't, in gen'l, good analysis in bubble markets. they are, on the whole, mutually exclusive. good luck.

To: Ilaine who wrote (32859)	9/25/1998 5:41:00 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

Blue, I read the JKG interview when it was first published. Somebody on this thread Urled it to me. He makes a lot of sense. The fact is, for the most part, it isn't a swindle as much as it is mass hallucination. The game worked like this: 1. The Fed had to print lots of money and make credit as easy as Linda Lovelace to save the banks back in the mid to late 1980s. 2. At first, at least some if not most of this money and easy credit went into productive capacity. But you can only push so hard before you get a glut. So, on the margin, companies stopped building more excess capacity. Yet, the Fed kept kicking the credit out the door. 3. Companies used the credit and easy money to buy back their stock. This does nothing to increase productivity. It is simply a financial shell game. Most of that stock was used to fund employee option scams, in lieu of salaries and bonuses. 4. After the market went up a lot, the public got interested in investing. They always do when the market goes up. All the crap about 401 K plans and IRAs was just that: crap. The public buys when the market has gone up. 5. Govt. coffers started to be replenished with all the tax revenue from capital gains. 6. The wealth effect made the consumer eager to show off his wealth. 7. Media parasites, including our own beloved SI, grew up around this bull market phenomenon. Problem: Many sectors of the US population were co-opted into the permabull camp. The companies would look like fools buying their stock at the top unless there was another top. Banks and brokerages were loaning money and making large "profits" on stock collateral. Individuals were planning to retire in luxury rather than subsistence. Analysts were scoring huge salaries and bonuses as long as they played kissy-face with the companies they followed. The govt. was talking about surpluses and they don't want to have to tell the voting public that they were just kidding. The stores are praying for a forever bull market that sends consumers in with fat wallets. And CNBS doesn't get advertising dollar one if stocks fall to 1700. With all these people co-opted, all factual and reasonable analysis was considered negative and sour grapes. Valuations could rise to silly levels because nobody cared about them. As long as the Abby Jo's and the Joe BattleAxeia's were saying that the Dow was going up, up and away, who cared about valuation. but excess credit has its downside. It lead to too much capacity worldwide and now our friends in the third world are losing their jobs. Which makes their banks shaky. Which makes our banks shaky. Which makes our output difficult to sell. Which makes Coke and Gillette eps stop growing. Which makes the valuations look even sillier. As the stocks inevitably drop to reflect this, that kills the options scams and the buyback swindles. The debt used to buyback this stock will eventually see higher rates and kill the earnings even more. We have gone from a virtuous cycle to a vicious one. So, yes, it was buying tulips. Not that some of the companies were not good. The stocks were just very overvalued. And the good ones will recover there eps and in a decade or so, their prices. In the meantime, wear a hard hat. MB