G'day Tom,
You speculate:
>Isn't it about time for the next sheep shearing on Wall Street or will
>it wait until after the Yugoslavian Affair is over. Or are we going to
>see a little sheep dip before the shearing?
If Kenichi Ohmae is right (and I've always suspected it), a significant
chunk of the pricing on Wall St is safe harbour money from the 150-odd
countries who have been doing it very tough of late. If over-extended
economies reach the point of no alternative (ie the IMF stops drip-feeding
them to avoid it), they could effectively take back this money, and then we
might have a kick starter (if Japan doesn't show any signs of life, it
could call big dough ion for yet another assault on those recalcitrant
domestic savers - and if Japan suddenly bursts into life, it'd suddenly
have better things to do with its money - funny stuff, economics). That
rather sounds like 'lose/lose' for Wall St, dunnit?
He also reckons the US has been printing much more money than it should to
fund its hideous foreign trade deficit - as foreigners do a lot of their
savings in greenbacks, all this dangerous moolah is being absorbed at the
moment. But if an alternative international currency crowns, that could
see a heap of surplus-to-requirement dollars floating around. And a high
CAD and a low unemployment rate in such circumstances would suggest an
interest rate hike, no?
Suddenly those debt-financed speculations and lifestyles (1999 tastes a lot
like 1987 over here - porsches and swaggering armanis everywhere) could
come home to roost - what with soaring credit card ceilings (and
concomitant negative balances: see this latest from Corp-Focus: "Families
have sunk deeper into debt. Household debt as a percentage of personal
income rose from 58 percent in 1973 to an estimated 85 percent in 1997.
Total credit card debt soared from $243 billion in 1990 to $560 billion in
1997. Credit card limits have risen to the point that the average person
can charge more than eight times what they already owe. As of 1997, almost
60 percent of American households carried credit card balances -- balances
that average more than $7,000, costing these households more than $1,000
per year in interest and fees*).
If the time comes for a hike, Greenspan may have to take the odds to a few
million domestic Ponzi units, eh? And if they're there in numbers, we'd
have a clean-out that could bankrupt enough people to hit the finance
sector.
Being me, I expect all this to unfold within months. If there is a bubble
(and I can't understand how there might not be one), it should be pricked
earlier rather than later, as big Wall Streeters are still talking of 30000
points by 2005 (no reference ever made to profitability projections - money
and production have been definitively split in Wall St discourse now) -
everyone'll have a piece of it by then, and the whole economy could go for
a burton.
Jordan will tell you stock scarcity is still the determining variable.
While we have more money chasing less stock, we have grounds for sanguine
expectations, he says. He's been impressively right so far, but that does
rather point at how important it is for foreigners to keep their money on
Wall St and to denominate their nesteggs in greenbacks, eh? That state of
affairs could alter quite quickly, I'd imagine.
Anyway, if that doesn't do it by November - mebbe the day traders on NASDAQ
will start the avalanche rolling when the prospect of Y2K begins to lift
the fog of greed for 'em.
I'm with you, anyway.
Cheers,
Rob.
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