[arete]

I would like to replace the Fed’s sentence in the above press release with my own interpretation of what they are saying. It would go something like this, “Sometime over the next nine months we will probably see a substantial deflation of financial assets.” In my mind, it will probably happen sooner than later, because next year they will need to clear the way for an election-year rally to get President Bush re-elected. We shall see if the Fed cooperates. So far it looks like they will as there seems to be no hesitation to continue pumping liquidity into the system and pegging long term interest rates below 5%. That is why we continue to see the dollar in decline.

The Fed is really between a rock and a hard spot. They can’t raise interest rates to strengthen the dollar, as higher rates would crush any chance of an economic recovery. They continue to expand money faster than GDP which will put continued downward pressure on the dollar. First quarter GDP came in at an annualized rate of 1.6%, but monetary aggregates (as measured by M-2) have been growing at an annualized rate of 7.2% for the last year. With all the spin on Bubblevision, it looks like they are trying to force the excess liquidity back into the stock market to re-inflate the bubble. We need foreigners to invest roughly $1.5 billion per day to support our negative balance of payments. With a falling dollar it will be difficult to attract foreign investors.

"Sometime over the next nine months we will probably see a substantial deflation of financial assets.”

That sounds about right.

Richard W.

[arete]

Martet WrapUp is Delivered!

I hope that everyone has an opportunity to listen to yesterday's Roger Arnold's interview with Dr. Frank Shostak. Today's Roger Arnold links include the 9:00 to 11:00 am show (Arnold is subing for Tom O'Brien) and Roger's regular one hour 11:00 am show.

9 to 11 Show

11 to Noon Show

Again both shows are excellent.

Richard W.

[RightWhale]

Sometime over the next nine months we will probably see a substantial deflation of financial assets

Foreign investors in American real estate are seeing it happen right now before their very eyes. Maybe this will burst the real estate bubble.

[ChuckMartelRox]

Okay, I've got investment decisions to make and now I'm totally confused.

Inflation or deflation?

Will the real estate bubble burst or not?

Is it a good time to buy house?

Do earnings generated by cost cutting mean anything?

Help!!!