RE: [FORTUNE] What could go right ?

From: Antoun Nabhan (
Date: Mon Mar 19 2001 - 06:11:41 PST

At 03:52 PM 3/17/01 -0800, Adam Rifkin wrote:

>I don't get it. Why should the Fed be allowed to slam on the brakes in 2000
>(150 basis points of increase in rates) and then slam on the gas in 2001
>basis points of decrease in rates so far)? Is this kind of whipsawing

Depending on which mad scientist you listen to, monetary policy is exactly
for this kind of short-term tuning of the economy. The Fed is only putting
in one of the variables in the equation with a rate change - they are
reacting to changes in other variables, like the risk discount that
"consumers" of equity securities are demanding, changes in productivity,
changes in exports, etc. There is evidence that several of these variables
changed very quickly in the past quarter or two.

> > The hints of inflation that the Fed decided to fight last year were mere
> > wisps compared with the inflation of the 1970s and early 1980s.
>How should inflation be defined? I don't remember the price of houses or
>stocks in the 1970s and 1980s going up tenfold but I regularly remember
>seeing this in the 1990s. On the other hand, the prices of bread and
>and liquor seem stable. But why shouldn't inflation include prices of
>houses and
>stocks? Isn't that where a huge asset base in this company is?

I believe the convention is to define it with reference to the consumer
price index compiled by the Bureau of Labor Statistics
<>. The top-level CPI does
include measures for housing costs, but not stocks. It's the "consumer"
price index, not the "money-grubbing capitalist asset accumulation" index.
:-) Prices of automobiles overall have actually dropped in the past 3 years
as the content of automobiles becomes more software/computers and less
union labor.

The price increases you're talking about are more regional in nature and
concentrated in a few urban areas - the CPI doesn't capture that
geographical "lumpiness." One additional problem is that a larger
percentage of Americans are moving to/having kids in urban areas and facing
(ahem, causing - remember that supply/demand thing?) these
disproportionately increased housing costs. So CPI fails to capture a key
aspect of how we "feel" the phenomenon. Douglas Coupland can articulate the
point from there!

> > In the entire fourth quarter of
> > 2000, corporations sold $4.4 billion in new high-yield debt in the
> > U.S., according to Merrill Lynch. In the third week of January, issuance
> > totaled $5.1 billion; in the fourth week, $5.2 billion.
>Remind me why the junk market being able to raise billions is important?

Not sure why in this context. You start financing your company with junk
bonds when the equity markets won't support your capital investment plans.
Junk bonds are, at least in theory, less risky for investors than common
stock, and thus a cheaper way to buy money than common stock issuances.
(There may have been a inversion of that cost-of-capital relationship from
about '96 to 2000.)

>How ironic that in the end our ERPs and CRMs and SCMs didn't really
>help us plan as well as we had hoped. But at least they kept us aware of
>that fact as it was happening. :)

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