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Pastimes : Ask Mohan about the Market
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To: Snowshoe who wrote (8139)11/16/1997 4:59:00 PM
From: Rational  Read Replies (4) of 18056
 
Greg:

I will be cautious because I sense that US Govt Bond prices will fall in value and drag down the stocks in a few days as the Japanese sell their US Treasuries. I would wait because the full effect will not be felt until the Fed moves to raise the interest rate. The Fed may not mind the dollar and the US stocks to fall, but as the over-night repo rate inches up, the Fed will be under pressure, lest banks will borrow from Fed at a lower rate to lend at higher rate and make arbitrage profits at an expense to taxpayers. The Fed cannot generally afford to keep the short-term rate lower, while the rates in the Wall Street go up. Fed wants the stock prices to go lower and so they will move soon. This will be natural for the Fed because the Asian markets will have become steady and so global markets will not shake-up due to panic as the Fed moves. It will be interesting to watch.

I do not have any idea about the mix of US Treasuries that the Japanese may have. But, it should not matter to prices across the board since the market is not segmented across times to maturities. The whole yield curve will shift upwards.

If the Japanese market goes up (or stays steady) due to Japanese Govt selling US Treas (or making an official announcement to this effect), then the US market will likely go down, IMHO. We should thus watch how Japan is doing tonight.

Sankar
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