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Strategies & Market Trends : ahhaha's ahs

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To: Jack Hartmann who wrote (341)	10/21/2000 11:13:57 AM
From: ahhaha	Read Replies (1) of 24758

Many others are convinced that the FED will ease next year. I heard Joe Battapaglia mention so yesterday. That's an easy call. Barring something jarring from the Middle East the FED expects that oil prices should sink. They might even tumble. In both events pressure on the Euro is reduced and so pressure to lower immediately is also reduced. Meanwhile Americans are striking with more frequency and intensity. They don't want to share in the risk of gaining wealth, but they do want to share in the wealth. So they have to take it by force. The Safeway strike is the latest that is surprisingly ugly and follows LA mass transit strike among others. Strikes will force the ECI to start rising and this gives the FED little choice but to leave rates where they are. So far the strikes have been settled quickly and invisibly. The complete terms of the settlements are rarely divulged or decipherable. The sole cause of inflation is demands for compensation above the worth of the output. The effects of a rising compensation coupled with already rapidly rising health costs won't have alarm visibility for months. If the Middle East tensions keep oil prices high and the Euro and yen start to tumble through critical support, the FED has no choice. They may ease briefly to support foreign currencies now and in contrast to expectations, find it necessary to raise rapidly to slam strike mentality next year. In this case you get a bear market right shoulder extended ledge into early next year and then another downside leg. If the FED has to ease in November, that would indicate foreign currencies were blasted. Between now and then the stock market would likely drop 1000 points and rally on the ease. A dropping stock market would also provide great incentive to ease especially since it would dash strike psychology. In all of these scenarios the handwriting is on the wall for the stock market. Wealth causes its own destruction. It is very difficult to see that the sole cause of all the problems is the FED's interfering with the free market's attempt to price money. You might ask what that has to do with exogenous effects like the Middle East. Nothing. It just gives an economy the best situation to ride exogenous shocks. The free market in money started raising rates in '97 and had it been in sole control, wouldn't have sent us through the money roller coaster that the FED has. The best in the business think AG has done a good a good job. The problem is that he's doing the wrong job. These observers think that appearances of wealth constitute proof of success. The real proof is stock market stability. We have been through wildly fluctuating markets over the last two years. These extremes are only possible when the monetary authority allows them. The monetary authority is way behind because they have to wait before they can assess the data. By that time the action they take increases the amplitude of the effect in the wrong way. Almost without exception this lunatic regime is considered the best. In contrast to the late '80s and early '90s when the FED hadn't fully wrested control from the free market and when you had stability, you can expect more wild in the streets.

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