(I could not resist communicating this conclusion of Henry's most recent story in the Asia Times, it's worth reading - JB)
The stock market recovery in 2003, with the DJIA rising by 25 percent from its low in March, and the Nasdaq rising a phenomenal 50 percent, and the S&P 500 rising 26 percent and the Russell 2000 rising 45 percent, fits into the PECT, even though it is a jobless recovery. The rise in equity prices is tempered by the dollar falling 20 percent against the euro, 10 percent against the yen, despite Bank of Japan intervention, and a whopping 34 percent against the Australian dollar. When a dollar buys less stock, it is not viewed as inflation by the Fed because higher equity prices can support more debt, which in turn causes the dollar to buy even less stock, which causes equity prices to rise even more. Yet no one seems to be worried about this bubble. The market takes comfort in Greenspan's recent claim that the Fed correctly focuses policies on trying to mitigate probable damage after the eventual bursting of a bubble of stock-market speculation rather than taking measures to prevent the bubble itself. Irrational exuberance is now the name of the game and the rule of the game is that markets can stay irrationally exuberant longer than investors can afford to stay liquid on the sideline. The Bush tax cut and the Iraq war have led to a huge and rising fiscal deficit projected by the Congressional Budget Office to be $477 billion in fiscal 2004, which ends in September, less than two months before the election. The accumulative deficit for the next decade may total $1.9 trillion, or 20 percent of GDP. If the recovery stalls, the 2004 deficit may reach $600 billion. Deficits are not necessarily harmful if they finance productive investments. Alas, war, speculative profits and debt-driven consumption can hardly be categorized as such. Whoever is president after the coming election, the first two years of his term will likely be consumed with the need for harsh measures to deal with a falling dollar, a runaway budget deficit, a reinflated debt bubble, a jobless recovery and a fiscal black hole in the "war on terrorism". The monkey will be on the back of the winner of the White House in November in the Year of the Monkey. Henry C K Liu is chairman of the New York-based Liu Investment Group. Complete story at: http://www.atimes.com/atimes/Front_Page/FB24Aa02.html
