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Gold/Mining/Energy : Gold Price Monitor
GDXJ 142.09+5.5%Jan 22 4:00 PM EST
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To: The Barracuda™ who wrote (48076)2/5/2000 10:40:00 PM
From: long-gone  Read Replies (1) of 116900
 
February 3, 2000

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Don't Expect Greenspan to Come to the Aid of the Markets As Quickly This Time
The speed and magnitude by which the Treasury 30-year yield has sunk below that of the 10-year has most likely caught yield-spread traders of all sorts by surprise. And a lot of these surprised yield spreaders are probably highly leveraged. Therefore, it is reasonable to think that some spreaders have taken major hits to their capital. There were unsubstantiated rumors to that effect floating around today. The last time something like this occurred was back in September of 1998. As you recall, Greenspan was quick to cut rates by 75 basis points to head off any possible meltdown of the global financial markets.

Don't expect Alan to come to the aid of the financial markets as quickly this time around if events similar to the autumn of 1998 develop again. Why not? For starters, the global economy is on more solid footing now than it was in the fall of 1998. Secondly, Greenspan realizes that he has created a moral hazard in the financial markets. The perception is that rich "Uncle Al" has put a floor under stock prices. The stock market is a one-way bet. If it goes up, it's your capital gain. If it starts to go down in a major way, the Fed will cut rates and flood the economy with credit created, figuratively, out of thin air. Greenspan wants to repent for his past moral hazard sins. And finally, (cont)
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