Conference nyoss1::market_investing

    Although simplistic, I think the answer is simply the enormous amount
    of money which is still in various fixed-rate CDs/etc. that are
    continuing to expire each month.  When faced with 5-year CD rates at 4%
    or so, and mutual funds that advertise 15% returns, people continue to
    dump money into the market that has never been invested outside of a
    bank before.  Despite the massive amount of this money that has already
    gone into the market there is still a lot of $ in banks which can
    potentially also get invested in the market.
    
    Without any fancy models or statistics to back me up, I expect these
    dollars to keep pumping in until the DJIA reaches 4000; if the
    economy/earnings haven't picked up by then we might finally reach a
    stalling point.

    The answer is so simple, few people believe it. The answer is "MONEY
    SUPPLY". Ther is so much money out there which the Fed has pumped into
    the economy (M1/M2) over the pass few years. Sure this devalues the
    dollar, sure it make the interest rates go down, Sure it causes stock
    prices to go up.
    So where does it end? Well ask yourself the question...where would you
    put your money now? In a 2-3% savings/money market/bond investment? or
    would you put on "anything" else that is yielding more? People ask 
    themselves, but what if the market crashes? The market will crash when
    people (moreso investment managers) pull their monies out of stocks.
    But I ask you...where do their put their monies if not in the stock
    market at this time? There is no other place to invest. So until the
    interest rates move up (which then people will get back into money
    markets and savings accounts), the best place in town is stocks and
    mutual funds.
    Now you might see a shift in which stocks and mutual funds people and
    money managers will go to. If the Dow is over valued and certain sectors
    are overvalued, then the smart money will shift to harder asset
    investments like gold, real estate, internationals, certain energies, and 
    natural resources companies. These sectors are relatively undervalued
    and react positively in times of inflation which is inevitable.
    To leave you with a thought I heard last week. ...the times where
    economic forces will override political forces are around the corner".
    
    Hold on to your hats, unemployment...inflation...strong foreign
    competition...too high MI and M2...(all economic forces) will squash
    the political forces of CLintons foreign policy, health care policy,
    economic reform policy, etc. There's too many people out of work
    (despite what the Gov'mt says the unemployment rate is. The inflation
    rate is certainly much higher than they are reporting. The figures
    base is always changing in their favor...no one can tell me that
    inflation is 2-3%. I, an avid saver, can not save anymore. Taxes alone
    are crippling my goals..not to mention energy costs, food costs,
    transportation costs, and medical costs. An average family is paying
    more for medical, health, and life insurance comparesd to a few years
    ago.

I heard that the economists are forecasting for a double-digit growth for 
American corporations in 1994. If this forecast were true, this will help to 
hold the P/E ratio of the stock market within range. And, we expect a slow 
growth economy for at least the next year and maybe beyond. This means 
inflation will remain low and unemployment will remain high. Interest rate 
will not move up anytime soon. So, the stock market is expected continue to go 
up. But, we have to keep a watchful eye on the international market. If Europe 
or Japan pulls themselves out of recession faster than we do, they may have 
some major effects in the US economy. If that were to happen, get ready to 
temporarily pull out of the US market for a potential major market correction. 
I have to agree with the previous two replies that the major driving forces for 
the US stock market right now are the low interest rate and low inflation.

Mike

.2>    The answer is so simple, few people believe it. The answer is "MONEY
.2>    SUPPLY". Ther is so much money out there which the Fed has pumped into
.2>    the economy (M1/M2) over the pass few years. Sure this devalues the
    
    Then why is Congress so upset with Alan Greenspan for -failing- to meet
    (i.e., being too low vs.) FED money supply targets?
    
    I looked at _Barron's_ from last weekend and divined the following data
    from the "Money Supply" section near the end.  Over the past year we
    have seen the following changes in the money supply ($Billion):
    
    Money Market funds:  -12		Currency:	    +50
    CDs:		-108		Checking accounts:  +87
    Jumbo CDs:		 -40		Savings accounts:   +50
    			____				   ____
    			-160				   +167
    
    There were other shifts as well but these are the main ones.
    I infer from this that as a rule people are moving out of CDs
    and into more liquid holdings.  No surprise there.  What I don't
    understand is why the numbers more or less balance.  We've been hearing
    how money flows out of CDs and into stocks, and I believe that, but
    here it looks like money flows out of CDs into savings and checking
    accounts.
    
.2>    are overvalued, then the smart money will shift to harder asset
.2>    investments like gold, real estate, internationals, certain energies, and 
.2>    natural resources companies. These sectors are relatively undervalued
    
    Yep, gold (especially the mining stocks) have been doing well;
    REITs are springing back to life, American money is inflating
    developed-country markets around the world (except Japan).
    Natural resources are still depressed.
    
.2>    To leave you with a thought I heard last week. ...the times where
.2>    economic forces will override political forces are around the corner".
    
    To be known as "Clinton's Comeuppance".
    
    Anybody been watching the PBS series on the first Great Depression?
    There were some interesting comments from folks who lived through it.
    One of those being that there were plenty of goods available but nobody
    was buying.  Meaning "productivity" wasn't the solution to deflation.(!)
    I fear if NAFTA fails in the House we're going to find ourselves in a
    similar situation:  plenty of goods, nowhere to export.
    
      John

    re: -1
    
    I vaguely remember that back a long while ago (like a few months), I 
    heard that only something like 17% (less than 20% anyway) of this
    country's money is in the stock market. So, my impression at that time
    was that not everyone who took their $$ out of CDs put them into the
    market. So, people are taking a "wait 'n see" position. If interest
    rate continue to remain low for an extended period of time, we'll see
    people got sick-n-tired of waiting and start putting their money
    somewhere. Some of this money will go into the stock market. But then,
    I think is the time I'll pull out.   :-)
    
    Mike

    re .4, .5, flow of money
    
    You have to be careful when tracking money.  While many individuals
    are "putting their money into stocks", the actual dollars don't vanish,
    and the net effect is to take a situation where A owns a stock and 
    B has money to one where A has the money and B the stock:
    
    Before	A : stock
         	B : CD for X dollars
    
    	CD matures, B buys stock
    
    After	A : ? for X dollars
    		B : stock 
    
    "?" represents what the seller of the stock does with the money.
    So it's not surprising that there's a move from CDs to cash-on-hand
    equivalents while sellers consider what to do next (after all, they've
    already decided not to stay in the market!).
    
    Money growth comes from fractional reserve banking and just printing
    the stuff, and real "money" nuts distinguish between currency, bank
    accounts, CDs and so on (as I failed to do above).  Currency follows
    nice conservation laws, bonds are easier to create out of nothing, 
    and just about anyone can issue stock.
    
    The "money in the stock market" numbers are really talking about
    wealth--while you can call a bond-like object (CD, T-bill...)
    "money", property-like objects (equity, options, real estate...)
    act differently--or rather, people act differently in reference to
    them.
    
    So what we're seeing is that many people who used to prefer CDs now
    prefer mutual funds.  Their wealth isn't changing (much), but the
    allocation is; their actions bid up equity markets (and wind up
    creating new equity and dropping the returns on equity) and bid down 
    CD markets (eventually raising interest rates).  The liquidity of 
    things is the big question: if these people are "strong hands" who 
    are in equities for the long haul, then that's a reduction in the 
    effective demand (for goods and services, so prices go down a pit,
    reflecting a lower money supply for some value of "money"); if they 
    are "weak hands" then this might represent an increase in effective
    demand.
    
    Liquidity and velocity effects can swamp money supply effects.  This
    makes life hard for Greenspan and the like, as they have very little
    control over either.
    
    		-John Bishop

    Question for the last few replies.
    
    I understand that the average family in the U.S. owes $15,000+ in
    credit card debt alone.  This came from a person in the credit card
    industry, so I assume it is accurate.  Considering this is credit card
    debt only and does not include car or house payments, I do not see how
    productivity (i.e. consumption) can improve much until this debt is
    greatly reduced.  The current buying power of the average household
    would appear to be very weak right now and for the future.
    
    So, what affect does this debt have on the money supply and the
    recovery plan and the Great Depression (which did not have this factor
    to deal with)?
    
    Ralph

    re: .7
    
    $15000/family in credit card debt sounds awfully high to me...

	Re. .7

	Assuming that there are 60 mil. families in the US, that would 
	make the total credit card debt to be $900 billion, which would be
	about twice the annual budget deficit. 

	I doubt if your number is correct. 

    It sounds high to me.  Not doubting that is what you heard, though. 
    I'd believe a number more like $1,500.
    

    One point that has not been raised in the replys to .0 is the effect of
    demographics on the stock market.  It has been stated that the market
    is currently rising to the fact that more money is continually
    pouring into the stock market - mainly through mutual funds - because
    there are few good alternatives at the current time.  When good
    alternatives become available, money will leave the stock market and
    hence the long awaited decline (collapse?) will occur.
    
    This may be correct.  However, I personally think that the stock market
    is going to go through a long-term period of higher than normal
    valuations due to the effect of long-term investment from the baby-boom
    generation.  Consider:
    
    - Practically every one I know (i.e. my age group) is either investing
    or beginning to invest in the stock market - usually through mutual
    funds. (A classic market top but with a difference).
    
    - These people are not doing it to get rich - they are doing it for
    college, retirement, etc.  This will have the same effect on stocks
    that the baby boomers had on real estate in the 70's and early 80's.
    
    - Many of the dollars poured into the stock market today are inelastic. 
    They cannot respond to market changes because they are locked in -
    through pension plans, 401K plans, IRAs, and people who dollar cost
    average. 
    
    - Current investors have seen market collapses, and are aware that the
    smart money stays invested after a collapse.
    
    - In a capitalistic system the only thing that really matters is supply
    vs. demand.  And demand for equities has permanently increased for 20 or 
    so years.  Note that these forces were also in effect during the huge
    long term run-up of the Japanese market. 
    
    
    Based on the above, I think that a market correction is going to occur
    within the next year or so, and that it will be the best time to invest
    for a long time.  Also note, when baby boomers begin to retire in huge
    numbers (those born in the 1950's), it will be the best time to sell.
    
    Also note - the two most dangerous statements regarding the stock
    market:
    - This time things are the same as last time.
    - This time things are different. 
    
    Still, the baby boomers have had a tremendous effect on every American
    institution that they have passed through.  They are now passing
    through the stock market.
    
    Wayne
    
    Wayne

I read $16,000 per person not including mortgages was the debt.  From
the census bureau a few years back I think.  This would include
all loans (auto, college, etc.)

    Perhaps I got incorrect data or heard it wrong (a favorite theory of my
    wife ;-) and she would be the first to tell you that), but I am
    interested to know what the figures are regarding debt and type of debt
    for the 'average family'.  I feel that those figures will be the
    driving force behind the timing of the economy.  Anybody have the
    latest figures and, if so, from where?

RE: .13 - figures regarding debt

BARRONS publishes figures on "consumer installment debt".

    
    fyi, consumer installment debt is about 760 billion (or thousand
    million for the Brits out there).  If there are about 250 million
    people in the U.S. and about (guessing) 3.1 persons/household, then
    the guesstimate works out to  760E9/(250E6/3.1) = $9400 of installment
    debt per household.  If anyone knows the real figure for average
    persons/household you can refine this guess.
    
    /jim
    

    Ying and yan.  For every point there is a counter-point.  Here are some
    of each (quotes are from .11):
    
>    - Practically every one I know (i.e. my age group) is either investing
>    or beginning to invest in the stock market - usually through mutual
>    funds. (A classic market top but with a difference).
    
    They've said the same thing at every market top since about 1720.
    There are always differences but, as in _Jurassic Park_, nature will
    invariably find a way to restore the balance.
    
>    - These people are not doing it to get rich - they are doing it for
>    college, retirement, etc.  This will have the same effect on stocks
>    that the baby boomers had on real estate in the 70's and early 80's.
    
    Yep, so instead of a crash ('29, '87) we'll see a protracted bear
    market, like in '73-'74.  Stocks will still go down.  Way down.
    
>    - Many of the dollars poured into the stock market today are inelastic. 
>    They cannot respond to market changes because they are locked in -
>    through pension plans, 401K plans, IRAs, and people who dollar cost
>    average. 
    
    Retirement plans like the above are managed by money managers who are
    regularly evaluated on their performance, right?  So they are going to
    want to buy and sell just like common folks.  Except they will buy and
    sell in huge amounts, thus exaggerating volatility in a "fast" market.
    
    Dollar cost averaging is successful only if it is continued through the
    inevitable downturns.  Until then we can only speculate if DCAers will
    continue their programs.  Historically when the stock market is down
    people tend not to have (or think they don't have) the money to invest,
    and stop buying just when the best bargains are available.
    
>    - Current investors have seen market collapses, and are aware that the
>    smart money stays invested after a collapse.
    
    This really scares me.  Whenever "everybody" knows something, "everybody" 
    is invariably wrong.  This tells me we are on the threshold of a -very-
    long bear market.  Just as this BULL market won't end until every bear
    capitulates, so too will the ensuing BEAR market continue until every
    bull capitulates.  That will be a loooooooooooooooooooooooooooooooooong
    way down from here.
    
>    - In a capitalistic system the only thing that really matters is supply
>    vs. demand.  And demand for equities has permanently increased for 20 or 
>    so years.  Note that these forces were also in effect during the huge
>    long term run-up of the Japanese market. 
    
    The supply of equities is rapidly expanding, too!  Companies that go
    public, raise tons of cash and then go bankrupt do a fine job of
    dissipating the excess capital in the stock market.  We all know of
    grandiose business plans that fall apart when the economy hiccups.
    
    I don't understand the Japan comment.  The "huge long-term run-up" was
    based on a shortage of equities?  If there was a shortage of stocks at
    Nikkei 40,000 why is the Nikkei currently at ca. 18,500?
    
>    Based on the above, I think that a market correction is going to occur
>    within the next year or so, and that it will be the best time to invest
    
    Or possibly just the first leg down of a very long trip.  It will
    certainly -look- like a great time to buy.
    
    All things considered, I'll take the forces of history over the 'Boomers.
    
      John

    re .16 to my .11 
    
    I appreciate your comments and wish to point out that I was trying to
    make an argument that other people may want to consider to try to
    justify a positive outlook.  
    Each of your points are very valid and I disagree with none.
    
    In reference to your question about my comments on Japan, I only meant
    to say that the demographics of Japan during the 60's and 70's were
    similar to that in the USA now - due to their "baby bust" after the
    war.  But I am aware that the long-term run-up of stocks in Japan was most
    attributable to the excellent performance of the underlying companies.
    
    Your points did leave me with with one question though.  The theme
    behind your response was that the same points that I raised could be
    used to predict a -very- long bear market.  Since I have appreciated your
    insight in the past,  the question is, are you in fact predicting this?
    
    Wayne

    Thanks for your clarification on Japan.  I was thinking only of the
    runup in the late '80s/early '90s while you were clearly speaking of
    the much longer secular Japanese bull market.  I agree the demographics
    are similar, but America does not now have the huge customer base that
    Japan had back then.  My opinion is this is more important than the
    demographic similarities.
    
    For the moment I am "only" predicting a bear market similar to
    1973/1974, i.e., 18 months and 50%.  Everything else is merely
    "a possibility".  Of course I've been "predicting" this for several
    years while those who were fully invested have gained spectacularly.
    Then again, many who are currently fully invested came in after 1990
    and do not have the gains but are exposed to the risks nonetheless.
    
    That's why I do market timing.  I simply do not have the faith that
    buy-and-hold is a good strategy for the current market.  So far I've
    managed to outperform the market this year and will issue an "official"
    summary of my timing performance once I do my 1993 taxes in 1994.
    
      John

Let me jump in here, for a moment, with a timing comment.  Recall, I do not 
think market timing is for the faint of heart.  To be consistently successful 
you need an understanding of Finance, Economics, Psychology, Sociology and 
"nerves of steel"; a little luck always helps, too.  

For what it is worth, I do believe that if you are going to NEED cash within
the next 6 months, this is the time to start planning your defense.  I am not
predicting a crash by any means, just a long wave sag. 

For instance, if you have been avoiding paying off your mortgage because the
cash is earning much, much more in the stock market, now might be a good time
to contact your mortgage company, find out what you need to do to pay off, pick
a STABLE Muni fund and start sliding what you need out of stocks and into that
fund.  Pick a cash-out point and stick to it.  If/when your funds' values slip 
to those points, cash out and pay off the mortgage.  If you are going to make 
any "big ticket" buys in the next year, this is a good time to start looking 
for sales.

As Always, For What It's Worth...

Dave

	Today's WSJ has an article on 10 analysts' opinions on when would
	the bear market start, how deep would it be, and what would trigger 
	it. 

	The opinions range quite widely, as expected, with the when
	answer ranging from imminent to 1997 (with a "median" of first 
	half of 1994), anywhere from 5 to 32% deep (mean of ~15%) and the
	triggers being anywhere from increase in interest rates to outbreak of
	war in Korea and the collapse of Paramount Communication. 

	Interesting article. 

	DJIA closed around 3710 today, up 33 pts. A new record!!

re .21

Yup, the market has already taken into consideration that NAFTA will be 
approved by the House.  Clinton has deep pockets (especially since WE will have 
to refill them) and is unabashedly buying votes with "considerations".  It is, 
perhaps, praiseworthy of this administration that they have not denied buying 
the votes.  When asked, they simply say they are putting things in a clearer 
perspective. :-)

So, don't expect much more than a nominal "bump" on Thursday if/when it passes
sometime tomorrow night.  Of course, since a "pass" has been more or less 
discounted, keep your brokers' telephone numbers handy if NAFTA is voted down.  
The first hour or so of Thursday's trading will remind you of Oct, 1987. 

Of course, Just My Opinion.....

Dave

    So,does anybody around here think NAFTA passing will *hurt* the market?
    
    Ken

    Think of all those dollars going south of the border.

    Re: about twenty back. I think the $15K average debt figure was each
    American's share of the federal debt. That is running about $4
    trillion; when all 250 million of us split that up, it comes to about
    sixteen thousand per.
    
    By the way, the trigger that I see for a sustained bear market is a
    modest but sustained increase in interest rates. The reason is that it
    will not stay modest for long. Too much of teh federal debt is financed
    with short-term notes, because they bear a lower interest rate. The
    drawback is that they have to be refinanced more frequently. Given a
    small increase in interest rates, the debt must be refinanced at a
    higher rate, which increases the deficit, which shrinks the money
    available for investing, which increases interest rates, which....
    I think it will be the mother of all positive feedback loops, and just
    might be the mechanism by which the fiat value of American currency
    takes an incredible, an perhaps unrecoverable, pounding.
    
    Sorry, my daddy taught me to hate debt. so I'm annoyed that over the
    past thirty years, the government has loaded me up with $16,000 of it.
    				Jim

    This is long, but it shows how things maybe different this time around. 
    We could be in for the worlds greatest 'Bull Run', or in the end the
    worlds worse 'fall'.  The comment in the beginning about only needing
    2% of the worlds population to produce, in my mind, presents a less
    than rosey future, but you be the judge........
    
    
    
    
                         WELCOME TO THE REVOLUTION
 In a historic convergence, not one but four business revolutions are upon us.
                      For your future, embrace them.
            {Thomas A. Stewart, Fortune, December 13 1993}
            {contributed by Alan Maltzman}

         
 LET US NOT use the word cheaply. Revolution, says Webster's, is "a sudden, 
 radical, or complete change . . . a basic reorientation." To anyone in the
 world of business, that sounds about right. We all sense that the changes
 surrounding us are not mere trends but the workings of large, unruly forces:
 the globalization of markets; the spread of information technology and
 computer networks; the dismantling of hierarchy, the structure that has
 essentially organized work since the mid-19th century. Growing up around
 these is a new, information-age economy, whose fundamental sources of wealth
 are knowledge and communication rather than natural resources and physical
 labor.
         
 Each of these transformations is a no-fooling business revolution. Yet all
 are happening at the same time--and fast. They cause one another and affect
 one another. As they feed on one another, they nourish a feeling that
 business and society are in the midst of a revolution comparable in scale and
 consequence to the Industrial Revolution. Asks George Bennett, chairman of
 the Symmetrix consulting firm: "If 2% of the population can grow all the food
 we eat, what if another 2% can manufacture all the refrigerators and other
 things we need?" [Another question is what if 2% can process and analysis all
 of the information we need -- mjt]
          
 Good question. The parking lot of General Electric's appliance factory in
 Louisville, Kentucky, was built in 1953 to hold 25,000 cars. Today's work
 force is 10,000. In 1985, 406,000 people worked for IBM, which made profits
 of $6.6 billion. A third of the people, and all of the profits, are gone now.
 Automaker Volkswagen says it needs just two-thirds of its present work force.
 Procter & Gamble, with sales rising, is dismissing 12% of its employees. 
 Manufacturing is not alone in downsizing: Cigna Reinsurance, an arm of the
 Philadelphia giant, has trimmed its work force 25% since 1990.
         
 Change means opportunity as well as danger, in the same way that the
 Industrial Revolution, while it wrought havoc in the countryside and in the
 swelling town, brought undreamed of prosperity. No one can say for certain
 what new ways of working and prospering this revolution will create; in a
 revolution the only surety is surprise.
         
 The transition may be difficult. As Neal Soss, chief economist for C.S. First
 Boston, puts it: "Adjustment is the dismal part of the dismal science." And,
 as Robespierre might have observed on his way to the guillotine, this time
 it's personal--for the inescapable tumult involves your company and your
 career. The paragraphs and stories that follow explain the causes and
 consequences of this era of radical change--and introduce some business
 leaders who are meeting the challenges it poses.
         
 General Electric Lighting is an ancient business, begun in 1878. It is
 headquartered in Cleveland on a leafy campus of brick Georgian buildings
 separated by placid lawns. Like sin into Eden, the world burst through the
 gates in 1983, when traditional rival Westinghouse sold its lamp operations
 to Philips Electronics of Holland. To John Opie, GE Lighting's chief, the
 memory is so vivid that he describes it in the present tense: "Suddenly we
 have bigger, stronger competition. They're coming to our market, but we're
 not in theirs. So we're on the defensive."
         
 Not long: GE's 1990 acquisition of Hungarian lighting company Tungsram was
 the first big move by a Western company in Eastern Europe. Now, after buying
 Thorn EMI in Britain in 1991, GE has 18% of Europe's lighting market and is
 moving into Asia via a joint venture with Hitachi. As recently as 1988, GE
 Lighting got less than 20% of its sales from outside the U.S. This year, Opie
 says, more than 40% of sales will come from abroad; by 1996, more than half
 will. In a few short years, Opie's world changed utterly.
         
 What happened at GE Lighting illustrates the surprises and paradoxes of
 globalization. Surprise: Globalization is not old hat. Global competition has
 accelerated sharply in just the past few years. The market value of U.S.
 direct investment abroad rose 35%, to $776 billion, from 1987 to 1992, while
 the value of foreign direct investment in America more than doubled, to $692
 billion.
         
 You ain't seen nothin' yet. The extraordinary rise in overseas telephone
 traffic (see chart) may best gauge how much more often people in different
 nations feel they have something urgent to say to one another--a good deal of
 it coordinating business activity. First Boston's Neal Soss points out that
 in the past five years or so the commercial world has been swelled by the
 former Soviet empire, China, India, Indonesia, and much of Latin
 America--billions of people stepping out from behind political and economic
 walls. This is the most dramatic change in the geography of capitalism in
 history.
         
 Paradox: Though it's hard to imagine a more macroeconomic subject,
 globalization is intensely parochial. Globalization's strongest effects are
 on companies. Says Anant Sundaram, professor at Dartmouth's Tuck School of
 business: "Statistics at the macro level grossly underestimate
 globalization's presence and impact." For example, Chrysler got just 7% of
 sales from outside the U.S. and Canada in 1992, but in the 1980s global
 competition nearly killed it.
         
 Investment numbers also reveal too little, for they do not count minority
 ownership or alliances--or the impact of competition originating abroad.
 Notes Frederick Kovac, vice president for planning at Goodyear, whose
 products can be found on all seven continents and the moon: "The major
 strategic decisions of our biggest competitors are made in France and Japan."
 Sales by overseas subsidiaries of American corporations are about three times
 greater than the value of all U.S. exports. Thus a lot of commerce that looks
 domestic to an economist--such as the Stouffer's frozen dinner you bought
 last week--looks international to a chief financial officer, in this case
 Nestle's.
         
 This makes for a profound change, Mr. CFO, in your job. Some observers argue
 that it is time you forget about the business cycle, or at least pay a lot
 less mind to it. Says Gail Fosler, chief economist of the Conference Board:
 "It's every industry on its own. When I talk to companies, it's very
 difficult to describe a business environment that's true for everybody." For
 example, she argues, as FORTUNE'S economists also hold, that capital spending
 "is no longer driven by business cycle considerations but by global
 competition." If the world is your oyster, an oyster is your whole world.
         
 Horace "Woody" Brock, president of Strategic Economic Decisions, an advisory
 firm in California, agrees. He says a nation's economy should be viewed as a
 portfolio of businesses whose fates are less and less linked: "What happens
 in the U.S. copper industry may be caused by shocks in Africa, and will have
 no effect on Silicon Valley. Silicon Valley may drive events in Japan's
 electronics industry, but these in turn will be uncorrelated with the auto 
 industry in either Japan or Detroit." Look at Seattle, Brock says, where two
 great technology companies, Boeing and Microsoft, operate side-by-side, one
 sagging, one booming--"utterly out of sync."
         
 For a nation, the net effect should be more stability, with long odds against
 all sectors booming or busting together. For individual businesses, however,
 it's a different story. Says Brock: "If your competitor in Germany does
 something, you react immediately--you don't wait for interest rates or
 recovery or anything else."
         
 Fortunately, the revolution in information technology is creating tools that
 permit just such agility.
         
 Robert Immerman is the founder of InterDesign, a private company in Solon,
 Ohio, with annual sales above $10 million. InterDesign sells plastic clocks,
 refrigerator magnets, soap dishes, and the like. WalMart, Kmart, and Target
 are customers, as are hundreds of houseware stores.
         
 There's not a high-tech item among its products, but computers have changed
 the business. In the past 12 years, InterDesign's employment has tripled,
 total space has quintupled, and sales have octupled, but its megabytes of
 computer memory have gone up 30-fold. Seven years ago Immerman dug deep and
 found $10,000 to buy a used disk drive that had 288 megabytes of
 storage-capacity that costs about $350 today. Says Immerman: "In the
 Seventies we went to the Post Office to pick up our orders. In the early
 Eighties we put in an 800 number. Late Eighties, we got a fax machine. In
 1991, pressured first by Target, we added electronic data interchange."
         
 Now, just two years later, more than half of InterDesign's orders arrive via
 modem straight into company computers. Errors in order entry and shipping
 have all but disappeared. Immerman says: "We had 50 weeks perfect with a big
 chain. Then one week we missed part of the order for one item on a long
 list--and they're on the phone wondering what's wrong." Staffers who used to
 man phones taking orders now track sales by product, color, customer, region 
 -- valuable information that Immerman once couldn't afford to collect.
         
 InterDesign's story is typical. In Alcoa's Davenport, Iowa, factory, which
 rolls aluminum foil, sheet, and plate, a computer stands at every work post
 to control machinery or communicate data about schedules and production.
 Practically every package deliverer, bank teller, retail clerk, telephone
 operator, and bill collector in America works with a computer. Microchips
 have invaded automobiles and clothes dryers. Three out of ten American homes
 have a PC.
         
 The revolution begins when these computers hook up to one another. Already
 two out of five computers in the U.S. are part of a network--mostly
 intracompany nets, but more and more are crossing company lines, just as
 InterDesign's electronic data interchange does. Data traffic over phone wires
 is growing 30% a year, says Danielle Danese, a telecommunications analyst at
 Salomon Brothers. Traffic on the global Internet doubles every year.
         
 The potential for information sharing is almost unimaginable. On the wall of
 every classroom, dorm room, and office at Case Western Reserve University is
 a box containing a phone jack, coaxial cable, and four fiber-optic lines.
 Through that box a student could suck down the entire contents of the Library
 of Congress in less than a minute, if the library were on-line and she had
 room to store it.
         
 For years CEOs and economists lamented that billions invested in information
 technology had returned little to productivity. That dirge is done.Says
 William Wheeler, a consultant at Coopers & Lybrand: "For the first time the
 computer is an enabler of productivity improvement rather than a cause of
 lack of productivity."
         
 Instantaneous, cross-functional communication about orders and scheduling
 enabled M.A. Hanna, the $1.3 billion-in-annual-sales polymer maker, to speed
 production, reduce inventory, and cut waste so much that the company needs a
 third less working capital to get a dollar of sales than it did four years
 ago. CEO Martin D. Walker notes that this gain came entirely within the four
 walls of the company; he estimates that an equal gain in working capital
 turnover is waiting to be found by networking with suppliers and customers.

 Efficiency is a first-order effect of new technology: That's how you justify
 the capital expenditure. The second-order effects are more interesting, and
 unpredicted. One disorienting result of the spread of computer nets has been
 the transformation of sales, marketing, and distribution. To see the change,
 says Fred Wiersema, a consultant at CSC Index in Cambridge, Mass.,  dig a
 ten-year-old marketing plan out of the file and compare it with a  new one:
 "The distribution channel is a mess. Customers have much more  power. There's
 fragmentation in media and advertising. The activities of the  sales force
 are completely different."
         
 The next trend, says William Bluestein, director of computing strategy
 research for Forrester Research, a Massachusetts firm: "Companies that 
 empower their customers." Soon, pursuing cost savings, suppliers and
 customers will be able to rummage other's computers, entering around in each
 other's computers, entering orders directly, checking stock and shipping
 status. One vehicle manufacturer can already go into Goodyear's system. Says
 strategist Kovac: "There will be a day in the not-distant future when
 customers will get data on the tests of a new tire as soon as our engineers
 do. They'll see everything--warts and all."
         
 From there it's a short step before customers start comparing notes--maybe on
 your network. Says Bluestein: "If I were Ralph Nader, I'd set up a consumer
 chat line so someone who was thinking of buying a Saturn could ask people who
 have one how they like it. If GM were smart, they'd do it themselves."

 Like globalization, information technology vastly extends a company's reach--
 but has the paradoxical effect of rewarding intimacy. Computers enormously
 increase the amount of information a company can have about its market--but
 deliver premium returns less to careful planning than to quick responses to
 changing circumstances.

 Both phenomena have powerful implications for the way work is organized.

 In 1958 Harvard Business Review published an article called "Management in
 the 1980s" by Harold J. Leavitt and Thomas L. Whisler, professors at the
 Carnegie Institute of Technology and the University of Chicago. It predicted
 that the computer would do to middle management what the Black Death did to
 14th-century Europeans. So it has: If you're middle management and still have
 a job, don't enter your boss's office alone. Says GE Lighting's John Opie:
 "There are just two people between me and a salesman--information technology
 replaced the rest."
         
 Leavitt and Whisler, knowing only mainframes, foresaw an Orwellian workplace
 in which the surviving middle managers were tightly controlled from on high,
 little different from the people they bossed. In a world of expensive,
 centralized computing, it might have happened that way. But distributed
 computing redistributes power. Says Goodyear's Kovac: "It used to be, if you
 wanted information, you had to go up, over, and down through the
 organization. Now you just tap in. Everybody can know as much about the
 company as the chairman of the board. That's what broke down the hierarchy.
 It's not why we bought computers, but it's what they did."
         
 The management revolution has many fathers, some more venerable than the
 computer; self-managed teams and total quality management have intellectual
 roots reaching back half a century. Why, then, does it seem as if the mores
 and structures of management are undergoing discontinuous change? Is this
 really new? Or are we deluding ourselves, the way each generation of
 teenagers thinks it discovered sex?
         
 The evidence suggests a basic shift in the organization of work. Look first
 at the ubiquity of change. No longer is the management revolution confined to
 the same dozen trendsetting companies, the GEs, Motorolas, and Xeroxes. Says
 Stephen Gage, president of the Cleveland Advanced Manufacturing Program, a
 federally subsidized organization that helps small business apply new
 technology: "I doubt if there's a company around here that isn't
 experimenting with something having to do with dismantling Taylorism."
         
 Equally striking, leading companies now envision an endlessly changing
 organizational design. Kovac says: "The key term is 'reconfigurable.' We want
 an organization that's reconfigurable on an annual, monthly, weekly, daily,
 even hourly basis. Immutable systems are dinosaurs." To make this sort of
 agility possible, leaders are honing such techniques as rapid product 
 development, flexible production systems, and team-based incentives.
         
 At bottom, the management revolution triumphs because the underlying
 economics  of communication and control have changed, and those changes favor
 small, flexible organizations, not big ones. The argument, developed by
 microeconomists influenced by Berkeley's Oliver Williamson (and here
 oversimplified), goes like this:
         
 A transaction can be accomplished in one of two basic ways: You can go out
 and buy something from someone else, or you can produce it yourself. (Yes,
 there are hybrid forms, but remember that we're oversimplifying.) Call the
 first  system a market and the second a hierarchy. Vertically integrated
 businesses,  in which transactions take place between divisions, each with
 its own organizational ziggurat, are hierarchies. Each system has its
 advantages. Markets generally deliver the lowest price, because of
 competition. But hierarchies usually have lower coordinating costs--such as
 for salesmen, advertising, or debt collection. Depending on how those costs
 and benefits line up, a given industry will tend to be more or less
 vertically integrated, feature larger or smaller companies, and display a
 bureaucratic or  entrepreneurial management

 Now buy a computer. The costs change. In particular, hierarchies begin to
 lose their comparative advantage in coordinating costs. Invoicing is
 automated, decimating armies of clerks. Electronic order-entry cuts selling
 costs. Says Thomas W. Malone, professor at the Sloan School of Management at
 MIT: "Coordinating activities are information-intensive, and computers make 
 coordinating better and cheaper." The result, Malone argues, is to increase 
 the range of transactions in which markets are more desirable. Result: More
 companies decide to buy what they once produced in-house.

 The nice thing about this argument is that it checks out. Big companies are
 breaking up; outsourcing is on the rise. According to Roy Smith, vice
 president of Microelectronics & Computer Technology Corp., three out of ten
 large U.S. industrial companies outsource more than half their manufacturing.

 Businesses are more tightly focused: Conference Board figures show that
 between 1979 and 1991 the number of three-digit standard industrial
 classifications (SIC codes) in which an average U.S. manufacturer does
 business dropped from 4.35 to 2.12. Companies are also smaller: Census data
 show that the number of employees at the average U.S. workplace is 8% lower
 than it was in 1980. Combining those figures with data on spending for
 information technology, MIT's Malone and several colleagues found the
 shrinkage is greatest in industries where IT spending is highest. Smaller 
 payrolls are not simply the result of automation, for gross shipments and
 value-added also decline. The strong implication: In an information-age
 business, small is beautiful.
         
 Of the four horsemen of revolutionary change, the hardest to grasp is the
 invention of an information-age economy. How can a whole economy be based on
 intangible knowledge and communication? Yet intellectual capital--knowledge
 that can be captured and deployed to create advantage over competitors--is as
 vital a business concern as capital of the familiar monetary sort.
 Intellectual labor, too, is where the action is, a fact demonstrated by the
 widening gap between the pay of college-educated workers and those less
 schooled.

 Though knowledge assets and outputs are intangible, they are no less real for
 being so. It is possible to track the "intellectual content" of the economy.
 In 1991, business investment in computers and telecommunications
 equipment-tools of the new economy that create, sort, store, and ship
 knowledge--for the first time exceeded capital spending for industrial,
 construction, and other "old economy" equipment. The figures, while
 impressive, understate investment in knowledge machines because they do not
 show the growing intellectual ability of industrial gear. For example, more
 than half of machine-tool spending in the U.S. is for equipment with built-in
 computer numerical controls that, often, can be connected to networks. Says
 Jodie Glore, vice president of the automation group at industrial-controls
 power-house Allen-Bradley: "The electromechanical boxes we used to sell had a
 macho feel. You could tell that they cost a lot. Now it's, 'You see this disk
 . . . ?' "
        
 The new economy will transform the old and reduce its relative importance,
 it. The Industrial Revolution did not end agriculture, because we still have
 to eat, and the Information Revolution will not end industry, because we
 still need cans to hold beer. Microsoft Chairman Bill Gates, up to now the
 preeminent capitalist of the knowledge age, spends his money on a big house
 and fancy cars, tangible stuff indeed.

 The first effect of intellectual capital and knowledge work is to alter the
 economics of familiar goods and services--a process well under way. For
 example, in the now misnamed "industrialized" world, the amount of energy
 needed to produce a given amount of GDP has fallen 2% a year, compounded, for
 more than 20 years. Factory labor is less physically demanding: Gone the
 heroic workman, a WPA mural in living flesh, ruddy in the glow of the blast
 furnace; now she's likely to be a middle-aged mom, sitting in front of a
 screen, who attends night school to study statistical process control. Many
 auto repairs will soon be made not by a grease monkey with a wrench but by a
 technician who fixes an engine knock by reprogramming a microchip.

 As the usefulness of information, information technology, and information
 work grows, businesses find more ways to substitute them for expensive
 investments in physical assets, such as factories, warehouses, and
 inventories. By using high-speed data communications networks to track
 production, stock, and orders, GE Lighting has closed 26 of 34 U.S.
 warehouses since 1987 and replaced 25 customer service centers with one new,
 high-tech center. In effect, those buildings and stockpiles--physical
 assets--have been replaced by networks and databases--intellectual assets.
         
 Similarly, the cost of establishing a retail bank branch has shrunk: You can
 find one inside the door of the supermarket, next to the Coke machine.
 Especially in the Christmas shopping season, each day's mail brings you a
 stack of department stores. For the right products, catalogue retailers will
 migrate to computer or television networks. Rent in cyberspace is even
 cheaper than catalogue space, and much lower than rent at the mall.

 The shift to the information economy, like globalization, computerization,
 and the management revolution, appears first as a way E old jobs more cheaply
 of doing old jobs more cheaply. For those on efficiency's receiving end, it
 is a threat. But the drive for efficiency has also paid to string 12 million
 miles of optical fiber in the U.S., and, long before any couch potato has
 ordered up video-on-demand, efficiency will pay for a lot more construction
 of the electronic superhighway, the infrastructure of the information
 economy.
         
 That endeavor, says Paul Saffo, an analyst at the Institute for the Future in
 Menlo Park, California, "is a full-employment act for entrepreneurs."
 Compared with trade in traditional goods and services, commerce in knowledge
 is startup heaven. Entry barriers are low. Distribution and marketing of
 information need little capital; they don't even require access to a printing
 press anymore. Many products and services can be distributed electronically.

 The second-order effect of change, opportunity, is the unpredictable one.
 Gottlieb Daimler, Ransom Olds, and their pals thought they had invented an
 improvement on the horse. They did not know that the automobile would fill
 the countryside with suburbs--which, in turn, created thousands of jobs
 building houses, making lawnmowers, and delivering pizza. The knowledge
 economy is still so young that we have few hints of its second-order effects,
 in the view of Richard Collin, who studies the subject as director of Neurope
 Lab, a think tank in Archamps, France, near Geneva. Says Collin: "Today we
 are thinking in terms of using knowledge to improve productivity in our old
 businesses--how to do the same with less. Tomorrow we will think of
 competition--how to do more in new businesses."
         
 It makes sense that the core business of the knowledge economy will be . . .
 knowledge. Information, like electricity, does nothing unless it is harnessed
 in useful devices, like appliances. All kinds of appliance makers--writers of
 software, creators of databases--are beginning to fill the information-age
 business directory.
         
 The most valuable devices will be those that help business and people cope
 with change. Says consultant Fred Wiersema: "Management today has to think
 like a fighter pilot. When things move so fast, you can't always make the
 right decision-so you have to learn to adjust, to correct more quickly." The
 same imperative holds for individuals. Says Kovac: "Today the job is You Inc.
 When I came to Goodyear in 1958, my chances of promotion were one in eight.
 For a young person today, they are one in 30, and it's going to one in 50.
 But I think my children and grandchildren will have more opportunities than I
 did. They'll just be different."
         
 For Dustin Hoffman, as The Graduate In 1967, the future was plastics. Today
 you might say it's plasticity: the ability to adjust and learn.       


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<><><><><><><><>   VNS Edition : 2976      Monday 13-Dec-1993   <><><><><><><><>
    

    How's this....
    
    Russia very shortly becomes facist. This forces the US to bring Hungary
    & Poland into NATO and maybe Czech and/or Slovakia. This also stops the
    disinvestment in armaments and the US and NATO start to consolidate. 
    
    If this even _mildly_ comes about it'll put the global economy into
    hyper-inflation to cover the increase in debt. Gold goes through the
    roof.
    
    Am I all wet? [damp, moist...?]

    i don't think you're all wet...even without the return of totalitarianism
    in Russia, we have far more pressing problems here at home...the
    deficit this year will be about 300 Billion dollars and in case no one
    is paying attention, the Clinton administration just cut the expected
    Deficit reduction through 1995 from 98 Billion to 53 Billion, much of
    this because of the costs associated with NAFTA, Crime Prevention and 
    the Health Plan.
    
    If this present Administration and Congress fail to rein in the Deficit
    and get the budget under control, i think that your scenario will still 
    play out in higher interest rates, higher inflation and a long term 
    downturn in the Dow.
    
    i'm definitly Bullish and am putting money into Gold and short term
    cash positions, i'm willing over the next year to take a meager 3%
    return to sit on the sidelines and see what takes place.
    
    Dugo

	... and talking about "... world events now occuring ..." that could
drive gold back to the $500+ neighborhood.

    Ahh, but when the ads make it to the media you know the end of the move
    must be near. When the story makes the news proper (not just the ads)
    it's time to think about going the other way.
    
    Last August CNN featured a news story about Fido's �en currency mutual
    fund, and how well it had done. Sure enough, the �/$ rate topped out a
    week or two later.
    
    Christmas 1985 I saw a news story about how Harrod's (dep't. store) in
    London was accepting dollars on par with � sterling, the dollar was so
    strong. That rate topped out in January and fell almost 50% in the next
    6 years.
    
    In all of the above cases the price stopped just short of a nice round
    number (1�/�, $1/�, $2/�). I would not be surprized to see gold run up 
    to $498 and turn back. Maybe another month or so.
    
      John