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>Although confessing one's errors is unfashionable, I am also willing to
>admit that however short-term climactic Oct. 8th was for our favorite
>Index, we did not get the kind of public capitulation we were hoping to see
>to end this phase of the bear market.
Too many members of the long term investing public has learned that more
people have lost more money by being OUT of the stock market than in it.
Many of these people have more than tripled their accounts in the last few
years WITHOUT using leverage. These people have no intention of bailing out
any time soon. If you're waiting for a sign of total capitulation by the
general public, you're going to be waiting a long time (about ten years, to
be exact).
>Because of the baby boomers, are lengthy bear markets a thing of the past?
Yes, until the boomers become net withdrawers from the markets, rather than
net depositors.
>Also, the market is now
>expecting a series of further rate cuts, and the Fed needs to keep it going
>on Nov. 17th and beyond. Short-term this may be o.k., but longer-term (6-9
>months out?) it is clearly inflationary. So is recent money supply growth.
Not really. The disinflation (not deflation) we've experienced over the
past couple of years means that real interest rates have been rising. The
two cuts already enacted by the Fed haven't even brought real rates back to
the level they were about a year ago.
As for the money supply, the number for M3 reported by the government (which
has risen significantly) is completely useless. This number does not take
into account how much of the recent additions to the M3 have gone overseas
and are being used as the medium of transaction in foreign economies. US
dollars have always been used on the streets of Russia, Indonesia, and
Brazil, but the amount has skyrocketed over the past year with the global
economic meltdown. The truth is the amount of money actually flowing
through the US economy has probably decreased, and is exacerbating the
liquidity problem in credit markets.
>That the Fed is willing to in essence re-inflate already over-valued
>markets has done nothing but increase the risk of later downside action.
>Many people perceive that the Fed has now taken on responsibility to be the
>World's central banker. That indicates the predicament we're in, too.
>
The Fed IS becoming the world's central bank, whether they want the job or
not. More and more countries are tying their currency directly to the
dollar, and the ones that aren't are finding a larger and larger percentage
of their economy being conducted in dollars whether they approve or not. In
the long run, this is good for the US. Anything that strengthens the
dollar as the reserve currency only bolsters our competitive advantage over
other nations.
Bruce
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