Forum Archive Index - October 2001

["G Stolwyk" <stolwyk@wave.co.nz>]

Brian,

 

Thanks; a good article!

 

I have the feeling that we need to take account of the following:

1. The massive trillions of dollars looking for a home at breakneck speed. Information and transactions are now immediate. That was not the case before.

 

2. There are far more large companies being taken over than can be replaced and therefore there will be less choice to that investor who wants to invest in these, eg. funds: The powerful MSCI Index did not exist previously either.

 

3. The $US is still a favoured currency for those countries who think it wise to invest in the US.( A lot of $US lent to the Russians was later reinvested in the US by the Russian Mafia). 

 

The result will be that when conditions are right,  premium prices can be paid by these massive investors, particularly as they have been sitting on a lot of cash.

 

A perceived sudden 20% rise in a stock is quickly preferred above lower and lower returns from interest rates! 

 

Brian, you mentioned the relationship of lower interest rates and stock prices.

 

We know that lower interest rates prevail when demand and inflation are low. We also know that there is a delay before these take effect. That delay could be up to a year, they say.

 

So, we could be have an advancing economic cycle,  while the effect of interest rates is still 'kicking in'.( Exclude Japan). From what I know, the first effects from interest cuts made long ago, are being felt now.

 

I agree with your observation that when interest rates are low, there is a stimulus to get back into shares. 

 

What would have helped the market in the US are not only lower and lower interest rates but Bush also let loose 'a train of stimulants' down a fast slope to 'everywhere', I believe.

 

Tax cuts due now, lower interest rates and another $US 70 Bill. in support payments above those set aside for companies owning planes.

 

 We all know that the individual is heavily indebted. Will they save, instead of spend? Indications are that debts are being reduced. Therefore, could this stockmarket rise be a temporary phenomenon?

 

We all know how many American analysts talked up the Tech. market for a number of years and got away with it!

It won't surprise me if in the 'hour of need', some prominent money leaders can, and will talk up the market! And in the process get rid of unwanted stock! Very patriotic!  

 

That post of yours is 'a good call', Brian!

 

Gerry