Any economist who uses the phrase "Natural Rate of Unemployment" should be
spanked!
>From the article: "This time, inflation has not risen, as it so often did in
the past, particularly when the unemployment rate dropped belwo 5.5 percent.
It is now 4.4 percent.
And the reasons? Considerable credit went to "lucky shocks," as Alan Blinder
of Princeton University phrased it - falling oil prices, for example,
falling import prices, smaller-than-expected increases in health care costs
and ever sharper declines in computer prices.
"There is absolutely no reason to predict that these favorable supply shocks
will continue over the next year or two," said James Stock of Harvard."
>First, FunFacts about Alan's Tulip Market(TM)
>
>-> The market value of Microsucks is larger than Spain's GDP.
>
>-> Remember when Doug joked about the day when the NASDAQ would sell at
>a price/earnings ratio of 100? Guess what.
>
>-> scamazon.com's market value is almost twice the total value of all
>the books sold in the US every year. Borders just warned; it's hard to
>make money when the competition gives the stuff away at 70 cents on the
>dollar.
>
>-> AOL's market value is $6,000 per subscriber
>
>-> Yahoo's market value is $45 million/employee. For its sales to
>catch up to its market value, they would have to grow 50% a year until
>the year 2013.
>
>Finally, last time I brought this up, there wasn't much interest, but
>I'll try one more time. What do y'all think?
>
>
> Piling up debt to power the rise in shares
> <Picture>
> by ANDREW SMITHERS Chairman of fund manager advisers Smithers & Co
>
> One of the more perverse pleasures in life is looking at economic
>statistics. The rewards
> lie in finding that "what everyone knows" is so often far from the
>case. A current
> example of this is the widespread belief that the US stock market
>is being driven
> forward by individual Americans through their investment in mutual
>funds.
>
> Every quarter the Federal Reserve publishes statistics on the flow
>of funds in the US. It
> has just published the data for the third quarter of 1998. This not
>only shows that
> individuals are massive sellers, but that mutual funds also sold
>shares.
>
> The big buyers who are keeping the stock market up, are US
>companies, who bought
> at an annual rate of $222 billion (£135 billion). Some of these
>purchases are companies
> buying in their own shares and others are the result of takeovers.
>
> The amount companies spend on buying shares is more than twice as
>much as their
> profits, after they have paid out dividends. This means that the
>equity capital of US
> companies has actually been shrinking.
>
> Not only is the expansion of US business being financed entirely
>with debt, but the
> equity base on which this debt pyramid is being built is actually
>shrinking, even though
> US companies are already heavily in debt. Half the capital they
>need is now borrowed
> and if they continue to buy shares, the situation will rapidly get
>worse. It seems,
> therefore, that if Wall Street is not to crash, US companies must
>be increasingly
> debt-ridden.
>
> This, of course, could go on for some time, as the general attitude
>in America is that
> debt is good for you and savings are for wimps. There are, however,
>some signs of
> nervousness around in the bond market, where the difference between
>the cost of
> borrowing by the government and by companies has shot up.
>Nonetheless, companies
> will continue to buy shares if they can. This pushes up share
>prices and makes senior
> executives richer through their share options schemes.
>
> As US corporations get increasingly into debt and bond markets are
>less willing to help
> out, they have turned to the banks. One result of all this is that
>US money supply is
> racing ahead and past experience warns that this will eventually
>lead to inflation.
>
> The Federal Reserve, however, is much more worried that the economy
>will be too
> weak than too strong. It has cut interest rates three times
>recently, in spite of the fact
> that money supply is galloping away. This is because the Fed is
>worried about the stock
> market and wants to prevent it falling. It fears that consumers
>will take fright if the
> market falls and that this will quickly bring on a nasty recession.
>The problem with the
> Fed's policy is that keeping the stock market up requires a rapid
>build-up of debt and
> the more debt builds up, the more difficult it will be to climb out
>of the next recession.
>
>
>
>Enrique