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<DIV style="FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
<A href="mailto:Daniel.Goncharoff@xxxxxxxxxxxxxxxxxxxx";
title=Daniel.Goncharoff@xxxxxxxxxxxxxxxxxxxx>Daniel Goncharoff</A> </DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A href="mailto:bruceb@xxxxxxxxxxxxx";
title=bruceb@xxxxxxxxxxxxx>BruceB</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Cc:</B> <A href="mailto:eadamy@xxxxxxxxxx";
title=eadamy@xxxxxxxxxx>Earl Adamy</A> ; <A
href="mailto:realtraders@xxxxxxxxxxxx";
title=realtraders@xxxxxxxxxxxx>RealTraders Discussion Group</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Wednesday, October 06, 1999 12:31
PM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> Re: definition of "speculation"
and "bubble</DIV>
<DIV><BR></DIV>
<DIV>>Bubbles do not require margin or borrowed money. The most clasic
bubble >of all, tulip-mania, burst naturally through the breeding of more
rare tulips, >making them less rare, and less valuable. </DIV>
<DIV> </DIV>
<DIV>Dan, I think you're mixing up cause with effect. The increase in
supply of rare bulbs almost certainly did cause the bubble to burst, but the
important question is how did the price of tulips reach such astronomical
levels to begin with? The answer is leverage. Buyers were allowed
to put down only a fraction of the sales price, and that caused the
bubble. Leverage, or margin, is the key. This was also true in the
South Sea Bubble, 1929, and Japan in the 90's.</DIV>
<P>>Today's bubble in the stock prices of dot-coms, creating billion dollar
>valuations for companies that may never turn at a profit, but having
nothing >to do with leverage, will also die a slow death as the substantial
quantities of >shares still held by insiders come onto the market.
<P>Agreed, but if you add up the market cap of EVERY internet stock (including
the eventual winners), I'm guessing you get about $500 billion. That
might sound like a lot, but in a market with a total value of well over $12
trillion, it's peanuts. I have trouble seeing an internet stock meltdown
crashing the whole market (assuming it even happens).
<P>Bruce
<P> </P></BLOCKQUOTE></DIV>
<BLOCKQUOTE
style="BORDER-LEFT: #000000 2px solid; MARGIN-LEFT: 5px; MARGIN-RIGHT: 0px; PADDING-LEFT: 5px; PADDING-RIGHT: 0px">
<DIV style="FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black"><B>From:</B>
<A href="mailto:Daniel.Goncharoff@xxxxxxxxxxxxxxxxxxxx";
title=Daniel.Goncharoff@xxxxxxxxxxxxxxxxxxxx>Daniel Goncharoff</A> </DIV>
<DIV style="FONT: 10pt arial"><B>To:</B> <A href="mailto:bruceb@xxxxxxxxxxxxx";
title=bruceb@xxxxxxxxxxxxx>BruceB</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Cc:</B> <A href="mailto:eadamy@xxxxxxxxxx";
title=eadamy@xxxxxxxxxx>Earl Adamy</A> ; <A
href="mailto:realtraders@xxxxxxxxxxxx";
title=realtraders@xxxxxxxxxxxx>RealTraders Discussion Group</A> </DIV>
<DIV style="FONT: 10pt arial"><B>Sent:</B> Wednesday, October 06, 1999 12:31
PM</DIV>
<DIV style="FONT: 10pt arial"><B>Subject:</B> Re: definition of "speculation"
and "bubble</DIV>
<DIV><BR></DIV>Bubbles do not require margin or borrowed money. The most
clasic bubble of all, tulip-mania, burst naturally through the breeding of
more rare tulips, making them less rare, and less valuable.
<P>Today's bubble in the stock prices of dot-coms, creating billion dollar
valuations for companies that may never turn at a profit, but having nothing
to do with leverage, will also die a slow death as the substantial quantities
of shares still held by insiders come onto the market.
<P>Regards <BR>DanG
<P><I>I think most</I> <BR><I>people (myself included) define these terms as
meaning asset prices that</I> <BR><I>have been artificially inflated through
the use of margined or borrowed</I> <BR><I>money. If you agree to that
definition, then there is simply no evidence</I> <BR><I>for your claim.
Over the past 5 years (since the stock market first began</I> <BR><I>to take
off), the amount of stock purchased on margin as a percentage of all</I>
<BR><I>stock outstanding has actually FALLEN. In absolute terms, the
figure has</I> <BR><I>grown significantly, but as a percentage of the whole
market, it's down.</I> <BR><I>Where's the bubble?</I><I></I>
<P><I>Bruce</I> </P></BLOCKQUOTE></BODY></HTML>
</x-html>From ???@??? Wed Oct 06 20:26:34 1999
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Message-ID: <08c901bf106b$8d04a460$48dfcea7@xxxxxxxxxxxxx>
From: "BruceB" <bruceb@xxxxxxxxxxxxx>
To: <fritz@xxxxxxxx>,
"RealTraders Discussion Group" <realtraders@xxxxxxxxxxxx>
References: <199910061655.KAA04139@xxxxxxxxxxxxxxx>
Subject: Re: How to protect assets
Date: Wed, 6 Oct 1999 22:27:47 -0400
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> "BruceB" <bruceb@xxxxxxxxxxxxx> wrote:
> > Just keep in mind that in both the 30's and in Japan it was
> > nominal rates that fell. You might want to take into account what
> > real rates did during those periods in making your decision...
>
> I assume by this you mean that inflation sapped any gains? Would you
> expand on your answer, please?
>
> I think this topic concerns all of us, and I'm very interested in
> pursuing the thread further. Private emails from others indicate I'm
> not the only one. I hope anyone else who feels they have a good
> handle on the likely scenarios and/or the best financial survival
> plans will share it with us. Thanks!
>
> Gary
>
Gary, I'm torn to even comply with your request, because there's no doubt in
my mind that the doomsday scenario isn't going to happen, but here's what I
meant by my comment. People seem to be amazed that both the US in the 30's
and Japan in the 90's remained in a recession/depression when interest rates
were essentially at zero. If interest rates were zero right now, I think
it's safe to say that you, me, and every other American would be out buying
as many cars and houses we could get our hands on. The important thing to
remember is in the two examples cited, the economy was so bad that prices
were actually falling (deflation). If your money is earning zero interest,
but prices are falling by 2% a year, then in real terms your money is
gaining value at the rate of 2% a year. What this means is that individuals
and corporations that were borrowing money at a face value of zero percent
interest were really paying 2%.
As long as an economy is in a deflationary period due to extremely weak
economic conditions, cash is king, because your cash is actually
appreciating in value, and you don't have to worry about your bank going
under and taking your money with it. One could make the argument that
overseas investments might be a good idea, but if the US economy tanks, I
can assure you the rest of the world is going right down with us...
Why am I so sure this won't happen? Because during the Depression the US
was tied to the gold standard, and therefore the Fed couldn't pump the
economy full of money. This lead to deflation. With the gold standard
gone, Greenspan flooded the financial system with money after the '87 crash.
The result was no meltdown, no depression, and no deflation. If the market
bombs again, he'll do the same thing, with the same results.
Bruce
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