A Call From A Broker
Ring! Ring! Ring!
Harry: Hello.
Broker: Hello Harry. This is John DiPonzi from Fagenschlebois, Fatback & Dimbee. I just wanted to make sure that you didn't miss this new Bull Market
Harry: Didn't you last call me about late spring of 2000?
Broker: Yes. And I know that you had told me that you just finished a yearlong sell off of your stocks. Now is the time to get in on this new Bull Market. Didn't you see the market shrug off the Anthrax news at the close today? That's after totally wiping out Post 9/11 losses!
Harry: That is something that I don't understand.
Broker: Well, aside from ignoring current bad economic news, the people believe that this is going to be another antiseptic conflict.
Harry: What's that?
Broker: You know. Almost no casualties on our side and even minimal casualties on theirs.
Harry: I guess the Gulf War, and Bosnia conditioned them. What about the Stock Market averages? Even though the averages are well below their 2000 highs the S&P P/E is about the same. Even S&P P/E ratios calculated on a rather promising 12 months into the future out are still about 24. That is, it's still at an historically high multiple.
Broker: Look! This is a new economic environment. People are much more forward looking.
Harry: I thought that notion would have gone with the dot-com crash. What about Credit-card delinquencies? At 3.93% of all accounts they are at the highest level since the American Bankers Association started keeping records in 1980. Thirty-day mortgage delinquencies, at 4.63%, are at a 9-year high. The airline and travel industries are in terrible shape. Orders for tech equipment are way down across the board. I could continue with the list but you get the idea.
Broker: All that will be overlooked. Remember most of the market participants have no recollection of any prolonged economic slump. Again, they have been conditioned to believe that a slump cannot, any longer, be of a prolonged nature. So when the market goes down, they buy. As long as Greenspan can manipulate the money supply, problems will be short-lived. He is liquefying the system right now.
Harry: Doesn't that mean he's inflating the currency? He's going to give them more money to go further into debt? While he's giving out money to encourage more debt, a retiree's income is being decimated. One year CD's have dropped from 5.33% to 2.61% which really hurts anyone living off of a largely fixed income. Maybe he's planning to force them into the stock market because they cannot get a decent interest rate on their savings now.
Broker: They keep telling us that there is no inflation. Prices are not increasing fast.
Harry: Listen! The creation of fiat currency faster than the rate of economic growth is inflation. Higher prices are just a symptom that shows up later. We have already had those signs in a huge stock market bubble at historic highs as well as an explosion in real estate prices. The government seems to conveniently leave out of their indices those areas that do exhibit the currency inflation. Also, there has been another large increase in
unemployment claims from 617,000 to 996,000, for the last week of September/first week of October, year 2000 vs. 2001. I know that they call this measure a lagging indicator, but who's going to buy the products to increase a company's earnings? The combination of war, debt, unemployment and currency inflation seems like a formidable obstacle to overcome. I thought that I'd just buy a little gold and wait.
Broker: Don't you watch CNBC. Virtually all of their experts are telling you not to buy it. It doesn't earn interest and there are rumors that the price is being capped by the Treasury and the FED at about $295-$300.
Harry: Isn't that illegal for the government to try and control a market.
Broker: Oh, not to save the economy.
Harry: CLICK!
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Harry J. Clawar Ph.D.
hjc@angelfire.com
October 17, 2001
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