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

To: porcupine --''''> who wrote (1326)	2/23/1999 10:08:00 AM
From: Freedom Fighter	Read Replies (3) \| Respond to of 1722

Porc, I am far from an expert in Austrian theory. I am a novice. But I do know enough about it to know that I disagree with your view of "what it is" to begin with. You do not understand it well enough to trash it. I also disagree about whether it has intellectual merit in understanding what's going on in the world and the implications of those actions. I am CERTAIN it does. Economics is a subject that has only marginal value in "value investing" other than to perhaps understand why an economy is performing the way it is in the "short term". So it's really not worthy of a long discussion. It just seems to me that if you truly believe in free markets,(and I know you do)you would not be such a big fan of central banking credit inflation or government intervention for the simple reason that both are not free market activities. Even if the intention is to correct prior mistakes by those very institutions. I have several thoughts about Japan. I am not quite sure how Japan can get out its mess with undo pain. Perhaps they will have to devalue significantly and lower their peoples standard of living to avoid credit deflation. I do not know. I do know this though. It was central bank credit inflation that caused the stock market and real estate bubble back in the 80s that is primarily the cause of the current problems there to begin with. It was subsequent government actions that built all those uneconomical bridges to nowhere, piled up debt etc... trying to jump start the economy for the last few years. It was more central bank credit inflation (attempting to bail banks out from the bubble bursting) that lead to all sorts of overcapacity throughout the rest of Asia as they sought to grow out of the mess. And it was the "Yen Carry" trade in small part that helped cause the financial seizure last year. 10 years of hell for the Japanese has been the result of something that Austrian analysis would have both predicted and prevented to BEGIN WITH. Something that many investment proponents used to cash in on big time when the bubble did finally burst. To me understanding and money is already enough merit. Wayne

To: porcupine --''''> who wrote (1326)	2/23/1999 11:49:00 AM
From: Freedom Fighter	Read Replies (3) \| Respond to of 1722

Porc, This is not a conversion attempt. Just a clarification for information purposes. Austrian theory does not predict doomsday as a result of central bank credit expansion. What is does say is that credit that does not come from savings but from bank fiat money creation causes mal-investment because of the economic miscalculation that results from non-free market levels of interest rates. This 'easy money' generally manifests itself in either CPI inflation, a trade deficit, asset prices that are rising more rapidly than output, and/or other mal-investments. There is no way of telling how it will manifest itself because there is no way of knowing where the credit will flow (other forces are at play too). Usually, a central bank, when confronted with these excesses, tightens money. This causes the excesses to be removed from the system and free market equilibrium to be achieved again. It can be very mild or very severe depending on the extent of the misallocation during the boom. In the U.S. and elsewhere, it has mostly been mild because central banks have generally been responsible. Japan on the other hand allowed the excesses to grow to larger levels. The consequences are therefore more severe. It is that extreme point when the system is faced with one of two alternatives. Bust or devalue (print money) significantly. The effects of a "true" bust are short and painful and have social and political costs. (We did not have a true bust in the 30s. There were numerous attempts at propping up the excesses and interfering with wages etc..) The effects of a devaluation (or money printing) are a loss of living standards and having foreigners come in and buy all your assets on the cheap. This too has social and political costs (perhaps worse - Germany for example) Japan allowed the extreme to occur and there are those that believe that the U.S is on the same path in the late 90s. That is, the Fed has ignored many troubling signs of mis-allocation and easy money because CPI is stable. That was exactly the rational in the 20s in the U.S. and Japan in the 80s for not tightening. Economic growth was robust and there was no CPI inflation. There were obviously problems though. Wayne

To: porcupine --''''> who wrote (1326)	2/23/1999 2:35:00 PM
From: Mike M2	Read Replies (1) \| Respond to of 1722

Porcupine, you raise many good issues my note addresses the Monetary school see Message 7984968 Your attack on austria due to the diversity of thought is irrelevant I could find many wacky ideas from the US. Mike

To: porcupine --''''> who wrote (1326)	2/24/1999 8:55:00 AM
From: porcupine --''''>	Respond to of 1722

U.S. Inflation Surprisingly Mild In January By Caren Bohan -- Friday February 19 9:17 AM ET WASHINGTON (Reuters) - U.S. consumer prices rose less than expected in January, another sign that inflation remains quiet despite robust economic growth, government figures showed Friday. The Labor Department said its Consumer Price Index rose just 0.1 percent last month, both overall and in the closely watched core index, which strips out volatile food and energy costs. That was below the 0.2 percent gain for both indices forecast by U.S. economists in a Reuters survey. Bond prices gained slightly when the figure was issued but quickly gave up the gains, affected by the simultaneous release of U.S. trade data for December, which showed the U.S. economy growing stronger than previously thought. The CPI, the government's main inflation gauge, had risen by 0.1 percent in December with a 0.3 percent gain in the core that month. In the 12 months ended in January, the CPI was up 1.7 percent. ''The CPI numbers look good. We see no danger signs of inflation,'' said Rick Egelton, Deputy Chief Economist at the Bank of Montreal (NYSE:BMO - news). The mild CPI rise in January came despite a 0.5 percent jump in food costs, which make up a sizable 15 percent of the total CPI Index. Many other major categories of goods and services showed little or no inflation in the month. Energy costs eased 0.2 percent, with fuel oil, electricity and natural gas costs down but gasoline prices up slightly. Housing prices dipped 0.1 percent in January, showing their first monthly decline since February 1986. Apparel prices slid 1.1 percent, the steepest drop in a decade. But medical care costs firmed 0.3 percent and the volatile airline-fare category surged 1.8 percent. The meagerness of the January CPI gain should soothe any worries raised by a report released by the Labor Department Thursday showing an unexpectedly high increase in the Producer Price Index for January. The PPI, which measures wholesale inflation as opposed to the retail prices tracked by the CPI, rose 0.5 percent, driven up by higher food and energy costs. The CPI and the PPI often differ, especially on a month-to-month basis, because they are computed differently. While the PPI is based on a survey of businesses, the CPI is calculated from prices observed in stores and other retail outlets. January marked the first month the department began calculating the CPI based on a new method called ''geometric mean.'' The change aims to take into account ways that consumers insulate themselves from inflation by substituting among similar items. For example, they could switch to Granny Smith apples if the price of Red Delicious apples goes up. The change is expected to reduce the CPI's annual growth rate by two-tenths of a percentage point, but Labor Department officials said the impact for a one-month time frame would be so small, it probably wouldn't be noticeable in the January figures.