Posted on 05/11/2004 6:25:06 AM PDT by Davis
This morning's e-mail brought notice of a dot-com Initial Public Offering (IPO) from Alibris, Inc., an Internet bookseller whose services I have sometimes used to buy out-of-print books, so I'm on its mail list.
I forwarded the Alibris e-mail to my correspondent, Jack Andersen, author of many Sages' Pages pieces. I asked him whether he thought this IPO was a harbinger of a new bubble. This was his answer.
Yes……stocks, bonds, precious metals & commodities, housing……all asset classes. The Fed made cash worthless. So much so that individuals followed the pros into the carry trade (borrow short, buy any asset).
In normal circumstances the Fed just props up the banks with the carry trade--the Fed arm of the US gov't lends short term to the banks. The banks use these funds to buy Treasuries (banks lend money back to US gov't at higher rates). The banks pocket the difference, at zero risk. The Fed has always used this ploy to reflate the banks after one of their ventures into business……real estate, foreign ventures, stock speculation are favored means for losing money.
Add in the mortgage guarantee Agencies (Fannie Mae, Freddie Mac, etc). Every time they sell mortgages (i.e., loan money to a home owner) they hedge by buying US Treasuries. So, the Fed loaned money to the Agencies at cheaper rates, individuals refinanced and bought homes at every higher prices. These Agencies lend the money back to the US gov't by buying Treasuries at higher interest rates.
Everyone is happy as long as this pyramid scam keeps going. If it were a business the Fed (& rest of gov't) would have been closed down for fraud. The problem is when all participants have to unwind this "riskless trade" AT THE SAME TIME.
Add in China, the new guy on the Capitalist block. It's the Fed on super steroids. They're just printing money and pouring it into a worthless banking system and uneconomic commercial and industrial enterprises and LOANS TO AMERICA to get us to buy their goods. This one is about to erupt.
In brief, the Fed transferred the Internet/Y2000 bubbles into the bubbles in all other asset classes. If this thing explodes, it will really rock the financial system.
Note Well that Jack's conclusion is conditional, "If this thing explodes..." and prudently he assigns no timetable to his conditional conclusion. But, certainly we are looking at a serious situation.
Are we already in the midst of undisclosed hyper-inflation when the average selling price of Manhattan coop apartments these days is $1,000,000, and $330 pairs of loafers grace the windows of Harry's Shoes on hardly chic West 83rd Street and Broadway? Is it time to take those cash wads out of your mattresses and buy more mattresses?
But when you get out of la-la land you find that housing prices are ok and shoes are still 24-75 bucks. Only the liberal cities suffer hyper-inflation. Something about large groups of socialists raising the costs of everything (and the value of nothing)
Is it time to take those cash wads out of your mattresses and buy more mattresses?
No. It's time to pay off your debt and buy land and guns. (Not due to anything in the article, it's just always a good time to buy land and guns)
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