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Technology Stocks : Harmonic Lightwaves (HLIT) -- Ignore unavailable to you. Want to Upgrade?

To: Mark Oliver who wrote (2575)	11/24/1998 4:10:00 PM
From: Hiram Walker	Read Replies (1) \| Respond to of 4134

Mark, I am no longer buying stocks, the only one I own is HLIT. I am out all in cash,thinking ot shorting Europe,and the eventual deflationary spiral brought on by the EURO. Then I will focus on shorting the US market,probably the Spiders,and then maybe is the internut stocks break,possibly them too. This is the biggest bubble of all time,dwarfs the Tulips,and the Florida Land speculation. We can thank the Fed for ultimately causing that which it is trying to avoid,a deflationary spiral. US: Double Bubble Stephen Roach (New York) Though I've often been accused of hyperbole, the stock market has finally outdone me. From meltdown to meltup -- the past five weeks have given new meaning to this mother of all bull markets. In many respects, it's been a no-brainer: The Fed has taken the upside out of the interest rate equation; the global crisis has faded quickly as a threat to economic growth and corporate earnings; and cash-rich, underperforming investors have every incentive to rush back in. Presto -- there's no looking back. The Fed is obviously the swing factor. With but one policy instrument at its disposal -- the federal funds rate -- the central bank has had no choice but to ease aggressively in response to the worst global financial crisis in 60 years. But actions often have unintended consequences. And the resurgence in the stock market certainly bears that out. I liken the outcome to the classic water balloon analogy: Press on a half-filled water balloon and the bubble quickly flows from one end to the other. Alas, one instrument can't do it all -- fix the crisis and, at the same time, maneuver the economy to hit prescribed growth, inflation, and unemployment targets. Something had to give, and Dow 9374 says it all. The same instrument that has contained the crisis has unleashed an extraordinary buying frenzy that has now taken on a life of its own. Unlike past dip-buying bonanzas, there's good reason to worry about this immaculate reconception in the stock market. The reason: An increasingly wealth-dependent American consumer is now hooked on asset appreciation as never before. This shows up in the form of a personal saving rate that has now moved into negative territory (-0.2% in September) for the first time since the early 1930s. I am not sympathetic to those who want to discredit this measure in order to dismiss this new and important tension point in the US economy. No, this is not the perfect gauge of household saving. But it does reflect an accurate assessment of the balance between the income generated by current production and the personal spending that drives that same pace of real activity. As seen in this context, a negative saving rate suggests that spending growth remains well ahead of measured income growth; the related inference is that US households are now more than willing to let the stock market provide the saving that would normally be forthcoming from a more cautious alignment between consumption and income. All this leads to a potentially lethal double-bubble -- an ever-expanding equity bubble that has given rise to an equally ominous spending bubble. How this all ends is pure speculation at this point -- no pun intended. Of course, in these days of renewed bliss, there's no reason to even contemplate such an adjustment. After all, the stock market is now in the process of turning in its fourth 20%-plus year in a row; since the end of 1994, the S&P 500 has increased by more than 150%, enough to have generated close to $5 trillion of new household sector wealth. A traditional "5% wealth effect" shows up as a $250 billion spending increment spread out over three years -- or about 1.5% of real disposable personal income (and spending) on a yearly average basis. But there can be no mistaking an American consumer that has been lured far from the saving norms of the past. Indeed over the 1960s, 1970s, and 1980s, the production-based personal saving rate averaged 7.6%. If this rate were to return just half way to its historical norm, then our estimates suggest that consumer spending growth would have to fall a full 2.0 percentage points below the pace of personal income generation over that period. That, in turn, would reduce real GDP growth by at least 1.3 percentage points -- easily the stuff of outright recession. But why worry? As long as the stock market keeps rising, this windfall of consumer purchasing power becomes the rule and not the exception. Saving need not ever take place out of the wage income generated from current production. Never mind the demographic profile of an increasingly older population moving inexorably toward retirement. Pay little heed to workers falling increasingly under defined contribution pension schemes. An ever rising stock market can do all the saving you'll ever need. And it can also support spending habits beyond your wildest dreams. Such are the perils of the greatest double bubble of them all. The stock market has clearly become too big to fail. Tim