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Strategies & Market Trends : John Pitera's Market Laboratory
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To: John Pitera who wrote (4635)9/20/2001 3:16:29 PM
From: Yorikke  Read Replies (1) of 33421
 
John,

I believe one of the major 'weaknesses' in the market has been that we DID see a major hedge fund go belly up a couple of years back and the fed moved to lessen the impact of that failure. All the big players got off lightly and the attitudes did not change. What would have been a major shock to the economy was not avoided but simply delayed. There have been a string of actions by the FED that will be labeled as overreaction when history is written.

The fed can not avoid the reality of poor investment decisions by pumping money into the economy and dropping the interest rates again and again. All it can do is delay the acceptance by the markets that there are many shell businesses still out there eating money with no prospect of turning around their businesses. Bad business concepts can only be disguised for a limited time. The extent of that 'limit' can be as long as the Japanese have managed to hide theirs; running into a decade of denial, or it can be a matter of a few years as we seem to be seeing in the US economy.

The 'feel good' era is over. Our need to face the harsh realities of the world is going to be far reaching. The Feds current response may be the right one, but it comes after a very long period of using the same remedy for much less serious problems. Is it not that lowered interest rates and increased liquidity are the wrong decision at the moment, it is that these remedies have been used to keep the economy in 'feel good' mode for too long, and now that they are really needed the addiction nullifies the remedy.
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