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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 248.01

-0.2%

11:05 AM EST

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To: Glenn D. Rudolph who wrote (114664)	1/6/2001 7:39:19 PM
From: GST	Read Replies (1) of 164684

Hi Glenn -- the Fed does it in the open market as a buyer and seller of debt instruments. In the old days there was no announcement of interest rate changes -- that is a relatively recent phenomenon -- you had to watch what the Fed was doing in the open market. Its buying and selling activities in relation to banks makes it easier or harder for the banks to lend money by impacting their reserves -- the FED makes deposits and withdrawls when it buys and sells. When there is a credit crunch and the Fed wants banks to make it easier for their clients to obtain more credit, the Fed can make it easier by buying in the open market. When the Banks lend too much and the Fed wants to make lending more restrictive it can do that as well by selling and withdrawls from the banking system, with the result that the money supply does not grow as fast. As far as rates are concerned, they are partly symbolic as they indicate how easy or tight the Fed wants to be. The provision of liquidity is the bottom line. I don't directly follow the open market actions of the Fed, but I make a note of it when reputable sources report on their actions in the press. The Fed was easing for weeks before they cut. As they continue to ease, bonds will price in further rate cuts. This is in part why the bond market feels confident in pricing in what might otherwise be uncertain future events. Look at the pricing of bonds and the shift of the yield curve on a week by week basis and you will get a good idea of what AG is doing -- pumping really hard from the looks of it. If people were to default on corporate bonds, whether in telecom or electric utilities, it would have a very adverse impact on the financial system which is hard to undo. His is probably easing aggresively because of the potential for a domino effect in the economy -- better not to let the first domino fall. That is why so many people are "spooked" by a big surge in liquidity and a sharp sudden cuts in rates -- it smells like there might be defaults looming on the horizon. Good luck.

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