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Strategies & Market Trends : MDA - Market Direction Analysis

SPY 694.07

-0.2%

Jan 29 4:00 PM EST

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To: pater tenebrarum who wrote (48999)	5/2/2000 3:04:00 PM
From: Crimson Ghost	Read Replies (1) of 99985

From Comstock Partners Pouring Gasoline On A Fire Greenspan's Options Limited We first wrote of Greenspan?s dilemma in two comments last July entitled ?Catch 22? and ?Catch 22 Continued?. In these reports we stated that the Fed had very little room to maneuver between undesirable outcomes; that Greenspan was afraid to exacerbate the stock market bubble, but equally afraid to puncture it as Japan did in 1989 with dire results. Attempting to walk a fine line between these two outcomes, the Fed has since continued its policy of raising interest rates by 25 basis point increments. This policy has not only been laughed off by the stock market, but has resulted in the fastest growth in consumer spending in 17 years, increased inflation and the fastest growth in the Employment Cost Index in 10 years. This morning?s economic release unexpectedly showed the strongest rise in new single family home sales since November 1998. Since all of these reports make it more likely that Greenspan will take more aggressive interest rate measures, Wall Street is now hoping that he will continue to raise rates by only 25-point increments. In fact, so widespread is this wish, that a rate hike of only 25 basis points on May 16th would have the same effect as pouring gasoline on a fire. Therefore, in addition to its effects on the economy, Greenspan has to consider the incendiary effects on the stock market if he only increases interest rates by 25 basis points. It is all the more likely therefore that a hike of 50 basis points is becoming necessary. We may find out more this Thursday when the Fed Chairman speaks at a conference of the Federal Reserve Bank of Chicago. Under these circumstances we think that any stock market rally will be limited and that further significant market declines are likely.

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