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Non-Tech : Tulipomania Blowoff Contest: Why and When will it end? -- Ignore unavailable to you. Want to Upgrade?

To: Roger A. Babb who wrote (865)	1/25/1999 8:36:00 PM
From: Jack Colton	Respond to of 3543

You might check for a "Randy Moss." He appears to have done all of the web programming, and it sure was not anything as sophisticated as Front Page! (vbg) [<Front Page is not what web developers use - it is rather lacking>] jtc

To: Roger A. Babb who wrote (865)	1/25/1999 10:16:00 PM
From: Hiram Walker	Read Replies (1) \| Respond to of 3543

Roger et all, great article from Steve Roach. I could not have said it better. Global: The Policy Bubble Stephen Roach (New York) The interplay between asset markets and real economic activity is becoming increasingly unstable. With each twist and turn in the global currency crisis, G-7 policy makers are understandably upping the ante of fiscal and monetary accommodation. Liquidity-driven investors have seized on this "policy bubble" as a powerful impetus for ever-expanding stock and bond markets. Yet this explosion in paper wealth is increasingly at odds with the weakened underlying state of global economic activity that it purportedly represents. What gives? It all began in Thailand some 18 months ago. As the global currency crisis of the late 1990s reverberated throughout Asia, into Russia, and now into Latin America, the G-7 has risen to the occasion with a coordinated and massive relfationary shift in public policy. This impetus has entailed two broad sets of initiatives -- the first taking the form of $160 billion of IMF-led bailouts aimed directly at the crisis economies. The second has been a staggered coordination of G-7 interest rate cuts, starting in Japan in early September 1998, spreading to the US last fall, and now unfolding in Europe. Courtesy of the G-7's unrelenting campaign of interest rate relief, government bonds have enjoyed an unprecedented safe-haven rally. The resulting surge in bonds has, of course, been a key element behind the valuation support for equity markets. It has acted to reinforce the resilience on the earnings side of the equation that many believed would be dealt a lethal blow by Asian-related hits to output growth. But with the industrial world's direct exposure to Asia more than offset by the positive impacts of lower interest rates and improved terms of trade brought about through lower "imported inflation," any earnings hits have turned out to be relatively limited. In that context, interest rate support to the equity valuation case is all the more potent. It's one of those "one-way bets" that investors dream about. In America, the old adage of "don't fight the Fed" has been supplanted by a central bank that has all but lost its fight altogether. The Fed, most seem to believe, will never tighten again. It's at this point when the story takes on a life of its own. With the crisis-related policy response offering liquidity-driven equity investors the mother of all green lights, the resulting surge in share prices has triggered a powerful wealth effect, which has provided added impetus to wealth-sensitive consumers. The United States is a case in point: Over the past three years, real consumption has expanded at nearly a 4% average annual rate, well in excess of the roughly 2.5% pace of underlying income growth. As a result, the growth impetus to the US economy has shifted increasingly away from the traditional dynamics of income generation and toward the new dynamic of wealth creation. The net result is a US economy that gives the appearance of being even more resilient in the face of global crisis. Little wonder the charge into financial assets continues unabated. This hardly speaks of a stable chemistry of support to the global economy. Real economic activity is being increasingly propped up by highly tenuous wealth effects -- wealth increments that stem more from reflationary economic policies than from a new underlying vitality to the discounted present value of a stream of returns from productive assets. Meanwhile, given the significant and sustained shortfall in real economic activity, a generalized trend toward worldwide disinflation is now veering toward price stability and/or outright deflation in some cases. That, of course, underscores the biggest risk of all -- a potential popping of the asset bubble at precisely the moment when the deflationary threshold is close to being breached. This could be a lethal combination for the global economy, with any generalized tendency toward product deflation feeding further on asset deflation. As the post-bubble experience of Japan has vividly illustrated, there is no easy way out once such a scenario starts unfolding. All this poses profound and critical questions to world's wise men. Sadly, there's no pat answer. As Alan Greenspan noted in his most recent epistle on the topic, asset markets are to be monitored but not targeted. In the meantime, the ever-expanding policy bubble continues to fuel a dangerous interplay between the global economy and world financial markets. Rare does such a house of cards gently come floating down. Important Disclosure Information at the end of this Forum Hiram