Go to Jeff Salisbury LWGate Home Page.From: Eric Jaenike <ericjaenike@yahoo.com>
Subject: RE: [CANSLIM] OT 7
Date: Tue, 29 Oct 2002 15:11:18 -0800 (PST)
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- --0-355457295-1035933078=:52634 Content-Type: text/plain; charset=us-ascii Just a quick note on one point you raised, re: inflation and money supply (just how much more OT we can get, I don't know, but what the heck). The following is excerpted from a speech given by Bill Fleckenstein, a hedge fund manager: "it is only in a period of low inflation that the monetary spigots can stay open long enough to foment a bubble... We have created over-capacity and precipitated massive speculation just as we did in the twenties. Inflation has been held in check not by prudent monetary policy but by a unique combination of events. In addition to the post cold war boom and NAFTA, the enormous productivity gains achieved by the massive invasion of powerful microprocessors into our lives conspired to keep CPI inflation in check, just as innovations such as autos, planes, and fractional horsepower electric motors suppressed inflation in the 1920s. Instead of CPI inflation we have created asset inflation in the form of the largest stock market bubble of all time". The basic point, of course, is that productivity gains have a deflationary influence. The fact that we experienced an increase in CPI is a result of increases in monetary supply overwhelming the deflationary influences of productivity. Jeez, I think I just put myself to sleep. For those interested, Fleckenstein will be on Kudlow and Cramer tonight. Eric Mike Gibbons <mike@proactech.com> wrote:Hi Rich, Yes, I agree with you that managing the stock market is not explicitly within the terms of reference of the Fed, unless one extends the meaning of "stable prices" to include "stable stock prices", which I think would be a stretch. To bash Greenspan for failing to manage what he is not mandated to do is just silly. However, it is fair to say that he should have forseen the longer term effects that "irrational exuberance" would have on output and employment in the longer term and taken whatever measures he could have to constrain the exuberance. I understand that one simple option would have been to increase constraints on margin borrowing which was within his power. Whether or not this would have had a significant effect is debatable however. It seems to me that we should look to the failure of other institutions, such as the SEC and the congress that failed to support the reforms that Arthur Levitt wanted to introduce, and the accounting industry that permitted outright lying in financial statements to fuel expectations. But ultimately, the fault lies with us. We get the government (and oversight) we vote for, and if we are foolish enough to buy a stock at 500 times earnings, because we believe in the greater fool theory, then we only have ourselves to blame when the bubble bursts. (No one in this group of course). As for the critique that the money supply spigot was opened too wide, then if so, surely we would have seen more general inflation than we have seen? Inflation has been mainly confined to specific areas of the economy, such as housing (recently due to low interest rates) and medical care. "Maestro" explains how Greenspan convinced Clinton that the most important thing he could do for the economy was to eliminate the deficit and I think we saw the benefits of that policy in the late '90's. IMHO, an announced return to that objective would have a significant effect on investor and consumer confidence. Aloha, Mike Gibbons Proactive Technologies, LLC http://www.proactech.com - -----Original Message----- From: owner-canslim@lists.xmission.com [mailto:owner-canslim@lists.xmission.com]On Behalf Of Rich Mau Sent: Tuesday, October 29, 2002 9:45 AM To: canslim@lists.xmission.com Subject: RE: [CANSLIM] OT 7 There seems to be a general belief that Greenspan's ( and the Federal Reserve's) job is to manage the growth rate of the stock market. This is not the case. I do not doubt that what they do affect the market, but that is not what they are supposed to be working on. The actual job of the Federal Reserve is: "to promote "maximum" output and employment and to promote "stable" prices." Now, whether they have done this well is a question for discussion. more at: http://www.frbsf.org/publications/federalreserve/monetary/goals.html > -----Original Message----- . . . > Rather than bashing Mr. Greenspan, we investors/traders need to > examine what happened in the late 90s stock market run up . . . - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email. - --------------------------------- Do you Yahoo!? HotJobs - Search new jobs daily now - --0-355457295-1035933078=:52634 Content-Type: text/html; charset=us-ascii <P>Just a quick note on one point you raised, re: inflation and money supply (just how much more OT we can get, I don't know, but what the heck). The following is excerpted from a speech given by Bill Fleckenstein, a hedge fund manager: <P>"it is only in a period of low inflation that the monetary spigots can stay open long enough to foment a bubble... We have created over-capacity and precipitated massive speculation just as we did in the twenties. Inflation has been held in check not by prudent monetary policy but by a unique combination of events. In addition to the post cold war boom and NAFTA, the enormous productivity gains achieved by the massive invasion of powerful microprocessors into our lives conspired to keep CPI inflation in check, just as innovations such as autos, planes, and fractional horsepower electric motors suppressed inflation in the 1920s. Instead of CPI inflation we have created asset inflation in the form of the largest stock market bubble of all time". <P>The basic point, of course, is that productivity gains have a deflationary influence. The fact that we experienced an increase in CPI is a result of increases in monetary supply overwhelming the deflationary influences of productivity. <P>Jeez, I think I just put myself to sleep. <P>For those interested, Fleckenstein will be on Kudlow and Cramer tonight. <P>Eric <P> <B><I>Mike Gibbons <mike@proactech.com></I></B> wrote: <BLOCKQUOTE style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #1010ff 2px solid">Hi Rich,<BR><BR>Yes, I agree with you that managing the stock market is not explicitly<BR>within the terms of reference of the Fed, unless one extends the meaning of<BR>"stable prices" to include "stable stock prices", which I think would be a<BR>stretch. To bash Greenspan for failing to manage what he is not mandated to<BR>do is just silly. However, it is fair to say that he should have forseen the<BR>longer term effects that "irrational exuberance" would have on output and<BR>employment in the longer term and taken whatever measures he could have to<BR>constrain the exuberance. I understand that one simple option would have<BR>been to increase constraints on margin borrowing which was within his power.<BR>Whether or not this would have had a significant effect is debatable<BR>however. It seems to me that we should look to the failure of other<BR>institutions, such as the SEC and the congress that failed to support the<BR>reforms that Arthur Levitt wanted to introduce, and the accounting industry<BR>that permitted outright lying in financial statements to fuel expectations.<BR><BR>But ultimately, the fault lies with us. We get the government (and<BR>oversight) we vote for, and if we are foolish enough to buy a stock at 500<BR>times earnings, because we believe in the greater fool theory, then we only<BR>have ourselves to blame when the bubble bursts. (No one in this group of<BR>course).<BR><BR>As for the critique that the money supply spigot was opened too wide, then<BR>if so, surely we would have seen more general inflation than we have seen?<BR>Inflation has been mainly confined to specific areas of the economy, such as<BR>housing (recently due to low interest rates) and medical care.<BR><BR>"Maestro" explains how Greenspan convinced Clinton that the most important<BR>thing he could do for the economy was to eliminate the deficit and I think<BR>we saw the benefits of that policy in the late '90's. IMHO, an announced<BR>return to that objective would have a significant effect on investor and<BR>consumer confidence.<BR><BR>Aloha,<BR><BR>Mike Gibbons<BR>Proactive Technologies, LLC<BR>http://www.proactech.com<BR><BR><BR>-----Original Message-----<BR>From: owner-canslim@lists.xmission.com<BR>[mailto:owner-canslim@lists.xmission.com]On Behalf Of Rich Mau<BR>Sent: Tuesday, October 29, 2002 9:45 AM<BR>To: canslim@lists.xmission.com<BR>Subject: RE: [CANSLIM] OT 7<BR><BR><BR>There seems to be a general belief that Greenspan's ( and the Federal<BR>Reserve's) job is to manage the growth rate of the stock market. This is not<BR>the case. I do not doubt that what they do affect the market, but that is<BR>not what they are supposed to be working on.<BR><BR>The actual job of the Federal Reserve is:<BR><BR>"to promote "maximum" output and employment and to promote "stable" prices."<BR><BR>Now, whether they have done this well is a question for discussion.<BR><BR>more at:<BR><BR>http://www.frbsf.org/publications/federalreserve/monetary/goals.html<BR><BR>> -----Original Message-----<BR>. . .<BR>> Rather than bashing Mr. Greenspan, we investors/traders need to<BR>> examine what happened in the late 90s stock market run up . . .<BR><BR><BR>-<BR>-To subscribe/unsubscribe, email "majordomo@xmission.com"<BR>-In the email body, write "subscribe canslim" or<BR>-"unsubscribe canslim". Do not use quotes in your email.<BR><BR><BR>-<BR>-To subscribe/unsubscribe, email "majordomo@xmission.com"<BR>-In the email body, write "subscribe canslim" or<BR>-"unsubscribe canslim". Do not use quotes in your email.</BLOCKQUOTE><p><br><hr size=1>Do you Yahoo!?<br> <a href="http://rd.yahoo.com/careers/mailsig/*http://www.hotjobs.com ">HotJobs</a> - Search new jobs daily now - --0-355457295-1035933078=:52634-- - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email.
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