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Politics : Formerly About Applied Materials
AMAT 120.49+2.4%Feb 7 3:59 PM EST

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To: StanX Long who wrote (60884)2/22/2002 6:03:16 AM
From: Sam Citron  Read Replies (1) of 70976
Fascinating '96 Fed meeting minutes at

Wish we could get them to join our thread. <g>

Excerpt: Lawrence Lindsey 9/24/96

...But that is not where I am most worried. What worries me
more is that our luck is about to run out in the financial markets
because of what I would consider a gambler's curse: We have won this
long, let us keep the money on the table. You can see early signs of
this. It includes real estate appreciation in the Hamptons,
Connecticut, and Manhattan. BMW and Mercedes both had their best
summer in history in the United States. The IBES earnings
expectations survey for 5-year projected earnings hit a 12-year high
in August. It indicates that earnings are expected to grow at a rate
of a little over 11-1/2 percent per year. Now, if we assume nominal
GDP growth of 5-1/2 percent over the same period, this means that NIPA
profits will rise from 10.7 percent of national income to 14.3 percent
of national income in 2001. Readers of this transcript five years
from now can check this fearless prediction: Profits will fall short
of this expectation. Unfortunately, optimism is ripe in the markets.
Excessive optimism is also necessary to justify current levels of IPO
activity and valuations of highly speculative stocks. While it is not
so large as to exert undue pressure on the real side of the U.S.
economy, this emerging bubble is nonetheless real. AS a survivor of
the so-called Massachusetts miracle to which Cathy Minehan referred
earlier, I can attest that everyone enjoys an economic party. But the
long-term costs of a bubble to the economy and society are potentially
great. They include a reduction in the long-term saving rate, a
seemingly random redistribution of wealth, and the diversion of scarce
financial human capital into the acquisition of wealth. As in the
United States in the late 1920s and Japan in the late 1980s. the case
for a central bank ultimately to burst that bubble becomes
overwhelming. I think it is far better that we do so while the bubble
still resembles surface froth and before the bubble carries the
economy to stratospheric heights. Whenever we do it, it is going to
be painful, however...
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