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

To: Casaubon who wrote (7641)	3/6/1999 10:21:00 AM
From: Ramsey Su	Read Replies (4) \| Respond to of 99985

Casaubon, could you elaborate regarding the most relevant factors for such a statement, and your expectations for the market over the next 6-9 mo. This is probably OT but since it is the weekend, may be LG would be a little lenient on his rules. Inflation has been the primary excuse, whenever the subject of interest rate is discussed. Contrary to what Greenspan may want Congress or the J6P to believe, inflation is a very simple concept that even low IQ individuals like myself can understand, with no special training. There are two simple components, supply and demand. If demand exceeds supply, we have inflation. Most people stop here and never bother to take it one step further. There are two types of inflation, not mutually exclusive. One is demand pulled and the other is cost pushed. If demand increases drastically and supply remains the same, we have a demand pulled inflation. If demand remains the same but supply decreases, we have cost pushed inflation. The US has been enjoying the best of all worlds for about 4 years. During the period when our economy is improving and our demand increasing, the world was heading in the other direction. A global excess capacity in just about every sector provided endless supply at cheap prices that even our seemingly unquenchable thirst for consumption cannot exhaust. Looking forward, let us look at the two simple components again. Is the US demand going to accelerate, remain stable or decelerate? My guess is that it will NOT accelerate. So we are unlikely to have demand pulled inflation. Is the global supply going to decrease? Brazil, which leads South America, is falling apart, with the Real at almost half its value from a few short months ago against the US$. Nothing we import from that region is going to be going up. To the north, the CN$ is also falling though to a lesser extent. Japanese yen is heading south fast. It will trigger another round of price competition in Asia with the biggest benefactor being the US consumer. EU, despite of those slippery banana problems, has no pricing power to increase their exports. So where is cost pushed inflation going to come from. Most would agree that the reverse is highly likely. There is not a single big cap US company that does not rely on some degree of global business for growth. Is the current S&P PE reflective of the potential growth rate for the next 3-5 years? Greenspan tried to use inflation and potential interest rate hikes in lieu of his infamous "irrational exuberance" speech. Why does he not just tell the truth in simple English? I will help him with his next Humty Dumty speech on capitol hill: "Mr. Chairman. I would like to inform you that our economy have practically zero chance for inflation. I will not be remotely thinking about raising interest rates and the Fed's next move is most likely to be lowering rate substantially. However, most of you would misinterpret this as good news. Let me just remind you that Japan's interest rate is once again back to almost zero and their economy is still in the tank, not to mention their stock market. If the American people are counting on this stock market exuberance for retirement, forget it. Furthermore, if slick willy is successful is moving SS money to the stock market, you won't even have SS when the market crashes. For those of you who are consuming via the negative savings rate plan, aka VISA/MC, we have protected you with bankruptcy laws that guarantees you would be no worse than Apple-Annie on 42nd street. And now I would be glad to entertain your questions." Yesterday's market demonstrates the type of euphoric spirit of a Fat Tuesday. One should be reminded that Ash Wednesday and the mother of all hang overs is just around the corner. I have only invested full time for 5 years and have never experienced this type of market condition where valuation is heading south while stock prices are at all time highs. The only comparison I can draw upon is the Asian stock market bubble, specifically the Japanese market. I remember news headlines that read "how can the Nikkei support PE of 30..", then it was 40, 50, 60, 70 .... What was it when it finally burst, 80? You ask me what is my expectation for the market over the next 6-9 months. The answer from the logic and FA side is - I DON'T KNOW. That is exactly why I am hanging out here and riding the tide with the TA gurus. Sorry for the long boring post, if anyone is still here. Ramsey