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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: Justa Werkenstiff who wrote (10553)12/19/1999 4:34:00 PM
From: MrGreenJeans  Read Replies (2) of 15132
 
Some Elaboration

Fed. action in light of an already tight labor market and a very hot economy. They are in a preemptive mode.

The Federal Reserve must be concerned about the wealth effect as a byproduct of the strong equity markets. The Fed wants to see the markets move sideways to lower as to lessen the wealth effect which is contributing to above average GDP growth or GDP growth above 3%. The question becomes is one or two rate hikes enough to cool off this economy? A hike of quarter of a point at each of the next two Federal Reserve meetings may not cool this economy going forward. Quarter of a point moves do not do all that much in the short-term.

Further, as the anticipation of rate hikes become a reality, the tightening is already being anticipated in the bond market, in January and going forward in the months ahead investors will react by selling equities first and asking questions later setting us up for a possible rather nasty correction. Most investors are caught up in the technology mania at the moment.

So I guess the question becomes at what interest rate does the equity market start selling off at? And the better question is why would one want to wait around for an anticipated sell-off if one thinks rates are more likely to go up in the coming months at these levels of economic activity?

As for me I will be raising more cash the last two weeks in December as this technology mania goes on. The QQQ has reached levels where only greater fools are buying.

More later.
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