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Strategies & Market Trends : Interest rate rise will trigger market crash / correction
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To: Bill Ounce who wrote (7)2/27/1997 12:32:00 PM
From: Arthur Tang   of 52
 
Thank you, Bill

World situation is not the same any more, because the client state competition is gone. Mutual investment prevents irrational behavior.

1)Hungary got the most foriegn investments; But Russia got $45 billion dollars from the west.
2)China got $37 billion dollars investment from Taiwan through HongKong.

Very hard to get mad at some one, who is still your investor.

Feds are different and difficult. You know why Kaufman (Salomon Bros.) knew Feds would raise interest rate? Because Japan will not buy any more 30 year T-notes from salomon bros. Every week, the Overnight discount rate went up, just to sell treasury instruments at a higher rate to Japan. Broke the backs of all our banks. Loan out 30 year mortgage at 6.5% and borrow from Feds at 21%. Greenspan wants to raise interest rate; you know Goldman Sachs told him bonds are hard to sell. Goldman Sachs took over Salomon Bros. job after a squeeze play that put a salomon bros. employee in jail. Yesterday, 5 year treasury had a poor bid, Greenspan cried to Congress on premptive strike on inflation. He wants to make every American borrower lose money on sudden rate increase; so that he can sell some bonds to Japan. In reality, if Feds does not try to make money on repo's; then people will buy the longer term bonds.

Crash the market? No. Liquidity used to be 8.5% of investments. Recently funds are fully invested. But some funds are preaching 35% cash again. If the cash position is resonably for redemptions; then crash will not occur. Crash is like "run on banks".
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