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

To: cfimx who wrote (1011)	11/19/1998 7:14:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 1722

Twister, >>how about those "peculiar strains in the financial system" wayne? I guess the Nasdaq 100 and the internet stocks aren't on the Fed's radar. The S&P is way way ABOVE historical norms, and there are STRAINS in the financial system.<< I am pondering a new way of thinking about our present circumstances. I may explore it in my next market view. Summed up it goes like this. In the past, stock prices were a reflection of the performance of the physical economy. How many cars did we build and sell? How much steel and oil did we produce and sell? How many customers did McDonalds serve? How many computers and software packages did we sell? Things like that. The better we did, the higher the market went. I think we have switched the relative importance of the physical and financial (paper) economies. The "new era" is: How are stocks and bonds doing? If they are doing poorly we will produce and sell less of those physical things. If they are doing well our economy will do well. We now have an economy that is much more based on capital gains than in the past. It is also less based on income streams the way it should be!!! Certainly if capital gains are achieved as a result of "physical" improvments it's OK. But for the last few years they were based on increases in money and credit being directed towards stocks relative to the increases in the economic output, new savings and income. This is related to lower corporate pension allocations due to outsized financial asset gains, very low personal savings rates (who needs to save if your portfolio is going up?), greater tax revenues for governments at the state and federal level making it easier to balance budgets (capital gains taxes) etc... The strain is this: In order to keep getting the capital gains you have to keep feeding the bubble greater amounts of new money and credit. Strain started to show up even though stocks had hardly declined at all as you stated. Greenspan is expanding the bubble because a sideways market produces no capital gains and strains the physical economy which needs those gains because there isn't enough savings and income to support it all operating at these levels. Eventually he simply won't be able to print the amount needed to sustain things without it spilling over into other imbalances. He has also made a monumental error over the last few years by only paying it lip service. (IMHO) Wayne Crimi Value Investor Workshop members.aol.com