Sheep Shearing

[Henry C.K. Liu]

Rob Schaap/Kenichi Ohmae analysis is right on target.  Greenspan and Abbey
Cohen of the now 15% publicly owned Goldamn Sachs may proclaim with straight
faces a new era where historically unprecedented p/e ratios of 1000/1 are
appropriate to the new technological world of creative destruction of everyone
over 25 years old and holding the same job for more than 5 years, or who does
not speak English, or who does not pay US taxes.  But reality will catch up
soon in ways that were described in Rob's post and then some.  The longer the
party, the more painful the hangover.  The scenario is not just 1929 all over
again.  No such luck.  This time, no one knows what it will look like because
its more than just a bubble burting, it is more like a bubble burst by the
ignition of highly pressurized combustible gas of structured finance. It will
be a bomb exploding.
If one looks at the growth picture in the developed economies in the last
decade, most of the growth came from the service sector and most of it from the
finance service sector.   There was a time that the service sector had to be
balanced by a consumption sector.  Now both the production and consumption of
services are logged as growth because the services are mostly consumed by
providers of other services. We have now  a growth sustained by a constant
redefinition of terms.  Soon, to borrow from Hitchen, soon, there will be no
one left to lie to.

Henry C.K. Liu

Rob Schaap wrote:


> 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.