[OPE-L:7134] Re: It does not seem US recession is over

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Thu May 09 2002 - 01:26:08 EDT

thanks for the response.

re: possibility of dumping of dollar denominated assets and resultant 
weakness in dollar, you write:

>Not necessarily.  It might be due to a weakening of the US eonomy, in
>which case the reduction of capital inflows could lead to more serious
>consequences, as outlned in my article.

Yes, I see your point.

I suppose that if even with such strong productivity numbers American 
companies do not buy back and thus support their own stock--and the 
WSJ reported today on continuing CEO pessimism even in light of 
strong growth and productivity numbers--there is no reason that there 
couldn't be a flight out of the dollar.

You very helpfully highlighted on the astonishing borrowing for the 
purposes of stock repurchase. I suppose that this was a result of 1. 
saving taxes , 2. boosting insiders' capital gains (have in mind an 
analysis by Harless and Medoff), and 3. signalling exuberant 
self-confidence to the capital markets.

I do not know whether companies are doing big buy backs at present. 
There is a certainly a lot of money in the vaults of a Cisco, Sun, 
Intel, Microsoft, etc.  that massive buy backs could be 
possible--maybe they are already supporting their own stock and 
preventing NASDAQ from finding its bottom?   At any rate,  if big 
companies do start repurchasing their own shares again in a very big 
way, I would not bet on a crash in the dollar.

But I am no investment analyst!

Best, Rakesh

ps as for Susan Strange's Mad Money on Japanese repatriation of 
capital from the US Treasury market, I had pp.48-50 in mind

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