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There is not much I could add to this brilliant piece. Actually, I don't know
myself if we are in a big bull, or in a big bubble. Truly, from the technology
point of view I think we are in a huge bull, but from the asset prices point of
view, I tend to adhere to the baby boom or better equity retirement plans
theory, which is yet to impact asia and europe btw. In that sense, at each sharp
drop I wonder if this is the end or not. truly we'll know only once we break
major previous swing lows, which has not been the case for ages now, ie when dip
buyers find themselves at a new loss...
For the moment it looks like another dip. I do expect however big volatility
this year.
Gwenn
mknapp@xxxxxxxxxxxxxx wrote:
> RT's,
>
> Throwing ones hat into the ring is never without its pains. I am new to the
> list and to trading and hope that the views expressed below offend none and
> show as little ignorance on my part as possible.
>
> Gwen, I will grant you the fact that the underlying problems of the US are
> not all that similar to Japan, but the US economy is in a unique situation
> all the same. With the pressure on wages and the housing sector, singly
> caused by the stock market, the U.S. economy seems to be overheating.
> Savings rates are at an all time low. Conversely, debt is at an all-time
> high. Look at the CRB. Although we have seen an up tick over the last few
> quarters, it has been mainly caused by oil and the squeeze in the gold carry
> trade. Most of the components are at 10 to 20 year lows.
>
> The stock market rally has been a psychological shift in the general
> population into "riskier" investments. Like all cycles, a significant
> downturn would turn away a large percentage of this trusting public. I have
> seen stats that indicate that a mere 55% of the US population is invested in
> the stock market in some way. That could leave a significant base for
> further run ups if the statistic is correct. So what of the sell off the
> other day?
>
> The Fed had increased liquidity to astronomical levels prior to Y2K, yet on
> the first two business days after the millennium in the US, they found it
> necessary to add liquidity. That is not a sign of strength in an economy.
> Granted it was only two days and they started the third day with several
> matched sales to drain reserves, but the Bond market took a very dim view of
> this on Monday and stocks began a correction the next. Coincidence?
>
> Did the Fed's acceptance of "lower" quality collateral before the millennium
> to shore up liquidity concerns, cause an unexpected problem now that Y2K
> turns out to be a relative non-issue? How do they get rid of the MB's and
> CD's and pare back the Agencies without severely distressing the bank's and
> investment houses that bet on Y2K?
>
> With upwards of 75% of the collateral over the last two months consisting of
> "lower" quality products, how does this affect the Fed's ability to confront
> economic issues going forward? The Fed's stuck in a catch-22. If they
> don't raise rates the stock market roars ahead and forces their hand.
>
> If they raise without addressing some of these issues they risk weakening
> the banking sector because of billions of poorly collateralized loans, and
> plunging us into a Japanese-esque scenario. Greenspan has been issuing
> warnings to banks for months (to no avail) for them to tighten up on lending
> practices. That, coupled with the MB's used as collateralized loans by the
> Fed, could have disastrous affects.
>
> Although I am by no means an expert on international finance, wouldn't this
> push the Euro to the forefront as the international currency, weakening the
> dollar and putting further pressure on the US economy? Didn't the Bund
> rally on Friday quite significantly as compared to the Bonds? Also,
> wouldn't this put everyone else's recoveries from a few years ago in
> jeopardy? The US has been a major net importer of a plethora of goods.
> With our switch to a service economy, and its commensurate less stable
> foundation's, what happens to everyone else's economies?
>
> Greenspan is still smarting from 1987, when he hiked rates and we had the
> stock market crash. The last thing he wants as a legacy is another crash on
> his hands. The Fed is in a precarious position. If they can find a way to
> squeeze out the Y2k liquidity with minimal pain to the financial community
> and put a cap on the stock market for a few quarters, they will have gone a
> long way in addressing these potential problems.
>
> The "bubble" economy is a bit of a misnomer. There is plenty of money that
> could yet be allocated to stocks and/or bonds. So a bursting of the bubble
> in the short term is not the issue. You can't stop a flood. The question
> should be, will the levee hold, and what are the implications if it doesn't?
>
> I have truly enjoyed reading the exchange of ideas over the last two months.
> Any constructive feedback would be greatly appreciated. Good trading and
> health to all.
>
> Mike Knapp
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