Limtex, I share your skepticism of the Fed, since it seems that we are highly dependent upon their policy decisions, and who knows if they are making appropriate decisions.
With the Naz decline, though, it seems like no matter what the Fed did, we were going to have a big collapse. Someone else summed it up here better, but basically we had 1)deregulation in telecom, which was done in such a way that established companies (eg Baby bells) were forbidden to offer long-distance services, and yet were supposed to open their local networks to new players. The new players started from scratch, raising lots of money thru the stock and bond markets. The baby bells have been less than cooperative, and the new players have not had the revenue to support their heavy debt.....so at some point the feverish network buildout had to slow down dramatically 2)The dotcom event similarly caused large amounts of money to flow to technology, with the purchases being made by new companies without the revenue base to support large amounts of debt...and yet they needed debt to survive. 3)The growth rates of 40-100% experienced by the established tech suppliers (csco, sunw, jdsu, glw, dell, lu, nt...led to very high stock prices, as a high growth rate can support a high pe, as long as the growth continues. but if the growth rate subsides or becomes negative, the PE contraction can drive the stocks down to very low levels.
The Fed observed all this, and concluded that at some point the growth would stop as funding stopped being offered to these new risky companies with minimal revenues. So, they gradually raised rates, 'leaning against the prevailing wind'. They fully expected that we would have a crash in the Nas when the high growth rates become low growth or negative growth. So, when the growth finally stopped, they have been aggessively dropping rates, again 'leaning against the prevailing wind'.
In this scenario, the Fed really did not have any other choice, since they did not have any way to influence the rapid optical network build-outs by weak players, or the rapid dotcom funding to weak players.
In this scenario, though, they would not appear to be antagonistic to growth, and one might expect them to be as accomodating as possible to growth over the near to mid-term, to counteract the natural market tendency.
This is only my amateur assessment of the situation, and I could be wrong.
Robin |
