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Sue,
I suspect that the world is more complex than that. Yes, the USA is a
Titanic stock and credit bubble headed straight for an iceberg. However, the
financials (especially stocks) investment climate world-wide is exceedingly
hostile. A quick tour of world economies yields little hope: Europe is in
the doldrums, Germany is in the pit, Japan remains in the pit, and (with one
exception) the balance of world economies are irrelevant because they lack
the required depth to support major investment. Thus the impetus for major
shifts in capital flows is lower than one might think ... more likely the
entire world will sink together. The one exception seems to be China, which
by all appearances is booming.
Speaking directly to the US stock market, I believe it remains hugely
overvalued and far from washed out. There are two factors to market movement
... price and time. While the NASDAQ has had the kind of price washout last
seen in the early 1930's, the larger cap indexes have not. I believe that
intervention has been successfully used in the markets to prevent the kind
of fast price washout many of us expected. This degree of success suggests
that the price washout may be more moderate and time will be much more
extended ... eventually the piper will be paid. This will be exceedingly
frustrating for bulls in a time where everything must be "instant" including
stock market bottoms. Bottom line, I expect we are going to see a trader's
market for the next 10+- years. Those who can trade both sides of the equity
market will be able to extract good returns.
The globalization of world trade has induced wide-spread goods deflation.
Quite simply, global companies are constantly shifting production to the
best value (cost, skills, and education) labor markets they can find
world-wide. China is and has been the market of choice for some time now.
Just as US manufacturing jobs were exported to Mexico and South America,
those jobs are now being exported to China. Thus, China is a vast
manufacturing machine which is under-cutting the entire world. (As an aside
to the technology bulls e.g. CSSC, I would note that China is fast
developing a very capable high technology research and development base).
Ultimately, such high demand for Chinese labor will increase costs, however
that is probably some years away. In the meantime, the rest of the world is
getting cheap goods in exchange for loss of its (national) manufacturing
base. There has never been a deep global recession (or depression) with
service based economies and I believe the outcomes will be much worse than
expected. This is a problem for all major economies ... Japan already feels
this and Europe and the USA are both highly dependent on imported goods.
The service economy is another matter. Costs for services have been
generally rising, however I believe that much of this demand has been fueled
by credit. Most so-called industrial economies have become service
economies. Should world economies enter deep recession, I believe the
service sector will become more cost competitive to compete for decreased
discretionary spending. While we have yet to see this in sectors such as
health care, we are already seeing it in sectors such as the fast food
industry.
Ultimately, it will be the (mostly US) credit bubble which sinks the world
economies into deep recession ... consumers because there is no money to
spend and producers because the consumers stop spending. The unwinding of
the credit bubble will be deflationary unless the policy makers (read
interventionists) find a way to unwind it slowly. This is unlikely
in-as-much as the Fed is still busy cutting costs for credit in an attempt
to stimulate demand on the part of already over-extended consumers and
business.
The charts certainly suggest that a major decline in the US dollar is in
order ... it is overvalued. However, once again the global investor is
confronted with the dilemma of finding an investment/currency environment
which offers superior/safer returns and that (for reasons mentioned earlier)
is hard to find. The Fed's rate cut (and failure of the BOE and ECB to lower
rates) certainly means European investment will get a bit of increased flow,
however this advantage will be transitory as the BOE and ECB will be forced
to cut rates to stimulate their own economies very soon.
While some see major bull markets emerging in commodities, I do not share
that view. Localized supply/demand conditions (crop weather, strikes, war,
etc.) will make for some wild swings, however a cyclical bull market in
commodities seems inconsistent with my view of a world economy which is
over-extended and likely to contract.
I do not currently hold much in bonds ... I made the mistake of exiting much
of my bond holdings a bit prematurely. However it is likely that high
quality US and European government bonds will provide superior returns over
the next 3-5 years when compared to other assets, although there could be
some wild valuation swings which many bond investors may not want to
stomach. History from the 1930's, as well as modern Japan, tells us that
long term bonds yields can drop to 1-2% which is much lower than current
yields.
To summarize, my economic views have not changed much in several years nor
is it likely they will change much in the foreseeable future. The late great
bull market in equities, together with the easy money is gone, quite likely
for several generations. There will be opportunities for traders, far fewer
for investors ... there are few safe havens when the global economy is on
such shaky ground. All of this, however will pass ... quite likely by early
in the next decade ... and the world (and USA) will once again prosper.
And I would keep an eye on the shills of Wall Street ... if they say buy
XYZ, consider selling it. If they say sell XYZ, consider buying it.
Earl
----- Original Message -----
From: "sue crew" <screwy@xxxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Friday, November 08, 2002 6:50 PM
Subject: Re: [RT] Answer my friend
> Earl,
>
> what is your view of things at the moment.? The USA to me looks like the
> big titantic sinking and nothing is going to help.
> Monetary policy will be ineffective - and close to zero just like Japan.
> Everyone due to Superfunds are heavily weighted to equities, the ageing
> population and risk aversion will drive markets in my mind, and will
> particularly drive equity markets down. The information ratio will
> become the new focus.
>
> Cash and bonds will rule for the next 15 years.
>
>
>
>
>
>
> To unsubscribe from this group, send an email to:
> realtraders-unsubscribe@xxxxxxxxxxxxxxx
>
>
>
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>
>
>
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