Re: FWD: The Biggest Risk to the Global economy in 2002

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

pdavidso wrote:

>
> >children around the world will begin to eat decent meals and enjoy basic
> >health care and edcuation. What does it matter if the DOW and the Nikkei hit
> >3000?
>
> Or 30,000?
>

The march is on to look critically at valuation.  For some time now, I have
suggested that profit under financial capitalism is no longer the result of market
forces but the result of accounting manipulations, both legal and illegal. This
view faced repeated challenge on PKT.  The Enron effect is now spreading across
the market, affecting financial giants from GE to JPMorgan/Chase and Deutch Bank.
The difference between the Dow at 3000 or 30000 is the market value of the
dollar.  An equity bubble expressed by the Dow rising to 30000 is in fact mere
inflation, although government statistics do not recognize it as such.  And the
Dow at 3000 reflects deflation.  Of course, inflation has its stimulative effects
on the economy, up to a point.  A strong currency leads to domestic deflation, as
both Hong Kong, Argentina and Japan have repeated discovered.  Enron's problem was
not considered problems when the going was "profitable", even though profit was
created by booking future pro forma values as current revenue and moving current
and future liabilities off balance sheet.  A false sense of safety was created by
hedges with appaent third party transactions that turned out to be incestuous.
Enron was in fact hedging against itself.  Now GE is under attack and Deutch Bank
is forced to switch to GAAP rules which will greatly adjust downward its profit
reports.

Henry C.K. Liu