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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (2937)	12/27/1998 8:50:00 PM
From: James F. Hopkins	Read Replies (3) \| Respond to of 99985

Haim; We'r mostly on the same page, I don't think employment is as hot as they make out, at least not the kind that has 401Ks, I've seen to many layoffs and cut backs popping in the news lately, the Xmas hireing at the retailers might have the numbers skewed.. -------------- As for the average JP6 in a 401K, he don't have any idea of what he's in, he gets to pick from about three or four choices saying from low risk, to balanced to growth, and other than that the package looks like it's in some foreign language to him. I guess it's those poor souls who some how think that even if the market goes down, it just means their 401K is not making as much. They have been taught the market always comes back. The real rub will come when they need that money to pay house notes and so on. By the time we see all the for sale signs pop up on all the nice new homes, it's to late. --------------- Jim

To: Haim R. Branisteanu who wrote (2937)	12/28/1998 8:11:00 AM
From: Crimson Ghost	Respond to of 99985

Morgan Stanley's Steve Roach on the 'double bubble" US: Double Bubble Stephen Roach (New York) The recent stock market rebound hasn't made it easier for any of us to sleep at night. But what concerns me most is not the possibility that stock prices are vastly inflated (which they well may be), but that the wealth created by the market boom has now become vital to the day-to-day workings of the American economy. Since the end of 1994, the Standard & Poor's 500 has increased by more than 150% -- generating some $5 trillion in wealth for individual investors. The problem is that consumers have become addicted to this bonanza and are acting as if it will continue forever. The most recent and obvious sign of excess is that the overall personal saving rate has fallen into negative territory -- in October, the last month for which full statistics are available, Americans spent 0.2 percentage point more than they earned. This is dangerous not only because people may be spending more now that they should be salting away for the future, but because our economic growth has come to depend on their buying binge. And when this spending stops -- as it must when the market falls -- the bubble will burst. The current consumption binge is very different from other recent economic expansions. Since 1Q96, overall consumer spending has grown at an annual average 4%, well above the 2.8% average pace we have seen since the economic expansion began in 1991. This is the direct opposite of what happened in the expansions of the 1960s and the 1980s. In those cycles, real consumption rose at around 5% annually in the first five or so years but then slowed to around 3.5% over the next three. In short, during the current expansion, spending has shot up at precisely the juncture when experience suggests it should have declined. To understand why this might be dangerous, consider how the business cycle usually works. In the early stages of a traditional recovery, consumers begin spending with a vengeance in order to make up for the goods and services they have done without during a recession. Once those pent-up demands have been satisfied, spending settles down to a more sustainable rate. This trend is usually most visible in spending on durable goods -- big ticket items like cars, furniture and appliances, purchases that can be deferred in hard times. In the first five years of the expansions of the 1960s and 1980s, real spending on durable goods rose at an average 10.5% annually, but then slowed to 6 percent in the subsequent three years. By contrast, spending on big-ticket items grew at a 6 percent pace in the first five years of the 1990's expansion but then accelerated -- it has been 7.5% since early 1996. It isn't likely that today's increased spending is based on need -- people have already bought the cars and computers they put off in the recession of the early 1990's. Consumers are bingeing because they feel wealthy and apparently think their stock holdings will take care of then in their dotage. This is worrisome because it shows what shaky ground the economy is on. What's going to happen if people suddenly don't feel so wealthy? They'll stop spending on anything but the basics, of course. If the growth in consumer spending slowed down to, say, the 2.8% annual growth that prevailed earlier in the 1990's, it would cause annual GDP growth to slow by nearly 1 percentage point from its current rate of 3.6%. That's hardly a trivial slowdown for an economy in which corporate profits are already sliding and some sectors of the economy -- mostly manufactured exports -- are hurting because of the Asian crisis. That people are spending more than they now earn only compounds the economic hazards. The last time such an imbalance existed was in the early 1930s. Back then, of course, consumers were liquidating their savings to survive; now they are doing so to live like kings. In both cases, however, things got out of whack. Regardless of what the stock market does, spending ourselves into debt cannot drive economic growth indefinitely. Of course, some say, there may be no reason to worry. So long as the market keeps rising, increases in consumer purchasing power become the rule and not the exception. Savings need not ever come from wages when a rising market seems to promise investors an ever-comfortable future. Has the stock market finally become too big to fail? Important Disclosure Information at the end of this Forum