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Pastimes : Ask Mohan about the Market

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To: Defrocked who wrote (7454)	11/8/1997 7:06:00 PM
From: Zeev Hed	Read Replies (4) of 18056

Defrocked: I for one do not see any rise in the discount rate next week. It should have been a decline actually, but I think AG is keeping his powder dry in case a financial accident occurs. Raising the rate here would invite such an accident. I am of the opinion that currently we have both fiscal and monetary restraint. On the fiscal side we are running what is essentially a balanced budget now. On the monetary side our interest rates ar about 100 to 150 bp above what they should be considering inflationary expectations. Continuing with both fiscal and monetary tightening will soak too much money from the economy and get us into an unecessary recession. I do not think AG goals is to solve the bubble problem with a recession, he is the master of the "soft landing" art, and he will do what is necessary to keep the soft landing scenario intact. That requires keeping the market down here or somewhat lower and letting earning and growth catch up with the elevated valuations. I know, the money supply is growing too fast, but I think a big chunk of this money is ending up in matresses in the developing world and as cash in underground economies. Zeev

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