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Earl
Great message!
I have only one main point of disagreement, which is your concern about
the vulnerability of a service economy in a severe recession. I would
argue that service economies are more flexible, and therefore should be
more robust than a manufacturing-based economy in bad times.
As for the future, I think it is inevitable that we end up with
inflation as the only way to restrain imports and to solve the credit
bubble.
Regards
DanG
EarlA wrote:
>
> 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
> >
> >
> >
> > Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
> >
> >
> >
>
> To unsubscribe from this group, send an email to:
> realtraders-unsubscribe@xxxxxxxxxxxxxxx
>
>
>
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