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.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Little Joe who wrote (21433)	10/11/1998 10:44:00 PM
From: Sergio R. Mejia	Respond to of 116764

Little Joe: Super-Natashas are announcing price cuts (GLOBAL DEPRESSION BLUES) nypostonline.com GLOBAL DEPRESSION BLUES By JOHN DIZARD THE financial world was off its medication last week. Usually, it's the raving lunatics at the fringes of my world who talk about global depression. Now it's the responsible leadership picking up the topic, at least in private. I spent a couple of days at the IMF/World Bank annual meeting in Washington, not a move calculated to improve one's mood. The faces of the participants reminded me of the ones I saw on the downside of the Big Thunder Mountain ride at Disney World. To begin with, hardly any of the bankers or money managers are going to get any bonuses at the end of this year. Since their lifestyles are well beyond what their base salaries can support, I would say this is going to affect quite a few decorators, as well as those mistresses unwilling to accept a cut in their allowances. Speaking of which, I heard that the super-Natashas, or Russian model/courtesans, were actually taking the initiative over the past month and making calls announcing price cuts. This gives me hope that their country is still on the road to a free market economy, rather than one tied to planning and price controls. I didn't really panic until I heard that C. Fred Bergsten, a prominent international economist with strong Democratic ties had said that talk of a global depression was fatuous. I remembered, if C. Fred did not, that back in 1981 he had penned a cover story for Institutional Investor magazine about The Coming Decline of the Dollar. The buck went up for another half decade. Usually Fred and the rest of the Washington policy hacks are right in the middle of the consensus on whatever point is under discussion. That's really their function - determine what a courtier should be saying to keep the king's favor and then repeat it at every think-tank seminar and cable talk show. But they're being caught off guard by the speed of events. The real surprise in Washington was just how worried the central bankers were about the possibility of a depression. There is a misconception that a depression is just a longer recession, or, as they say, when not just your neighbor but you lose your job. A depression is a fundamentally different event. Essentially, a recession means that production of goods and services slows down while excess inventories are liquidated. Eventually the store shelves are too bare, credit card balances are pared down, interest rates are lower, and production picks up again. The party in power naturally takes credit for a recovery that has almost nothing to do with them. A depression is something else. Not only are there excessive inventories, there is excessive capacity. Shelves have to be cleared and factories have to be shut down for good. Long-term capital as well as short-term capital has to be liquidated. It isn't as obvious here in the States that we have too much industrial capacity, but it is in other parts of the world. You can blame not only the excess optimism of businesspersons, but the godlike confidence of central planners in places such as Korea and Malaysia. There are too many car factories for any foreseeable demand, too many oil refineries in Asia, too many containerships, and, closer to home, too many investment bankers and financial intermediaries. There are money managers around town who soon will be asking if you want fries with that. Japan, which is now heading into a power dive, is a good example of how to prolong a depression process. The Japanese establishment believed that it could avoid shutting down overbuilt industries and insolvent institutions. But then it also seemed to think that this week's rally in the yen was a good thing, rather than a nail in the coffin. Study the Japanese, and don't do what they do. Bad times, and they will come, don't have to last forever. Instead, the lesson of the 1930s and other similar times is that the first countries to recover are the first ones that get out of restrictive policies. In the 1930s, that meant getting off the gold standard. In this round, it means central banks pumping money into the economy with rate cuts and bond purchases. Brazil is about to sip from the poisoned chalice of IMF programs. The Asians are beginning to wise up that the IMF has given them very bad direction in return for not enough money. The Euros are determined to impose even greater rigidity and planning, so that the last employed person there will be making $500 an hour in blocked currency. Not that they're all wrong. Their ties, shoes, and luxury cars are better than ours. But we shouldn't coordinate policy with that bunch of pompous clowns. In the meantime, we're about ready for a nice bear market rally. Buy into an index fund, so you can get in and out of it quickly over the next few months. Forget about a recovery in the Japanese market - it has a way to go down first. And when the gold price begins to recover from the short-term selloff that's coming in the next few weeks, buy into the bull market that's ahead. Please send e-mail to dizard@nypost.com