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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: Justa Werkenstiff who wrote (11514)1/29/2000 4:54:00 PM
From: Justa Werkenstiff  Read Replies (1) of 15132
 
** Rate Hike Analysis **

Since 1994, there have been eleven tightenings. On the day of the tightening, the market was up six times and down four and flat once on the day of the tightening.

Of those six up days, three of those days took place on the last three rate hikes. On June 30th the market (S & P) was up 1.57%; on August 24th the market was up .24%; and on November 16th the market was up 1.84%. In the OTC, the market was up 1.67%, 1.21% and 2.36% respectively.

If the Fed. moves only .25, the probability is that the market will initially rally. I believe the market has discounted a .50 rate hike next week on Friday and anything less will be a cause for a rally. I would watch the market closely on this point to see if the sentiment had changed.

Now I had thought last week that the Greenman would only move 25 basis points. I thought, in part, that his appearances before Congress would expose him as a 25 basis point man. But one of those appearances was postponed and we spun some bad numbers on Friday. So the Greenman can move 50 basis points here. What the heck, he might think, the market has already corrected for 50 basis points so why not give the market what it looking for and be done with it for now. After all, he was going to tighten at the end of December but for Y2K and the next meeting is not until March 21st -- quite a way off. How about a two-fer right here.

So I would now put the odds of a 50 basis move at 50/50 FWIW. And I think this meeting will be quite telling on how much of a new era man the Greenman has become. This is the pivotal meeting for the Fed. IMO. Because if he does not take his 50 basis points here and the market follows recent history, I think there will be greater risk in the market going forward if it rallies hard and complacency returns.
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