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Pastimes : Ask Mohan about the Market

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To: Bonnie Bear who wrote (9323)	11/24/1997 11:48:00 PM
From: Rational	Read Replies (5) of 18056

To all: I have not been able to keep up with the posts as I was teaching today. I read, however, news on the wire. The following are the fascinating developments that will (IMO) temper the market's downturn. * There is a lot of infusion of federal money (liquidity) into the market; this in effect is a reduction in the real rate of interest. * The BOJ is SMART. I was surprised to learn this. But, Japan being the second largest economic powerhouse, I should have expected this: They have recently made a mutual PACT with the Federal Reserve Bank of NY to let them have US$, obviating a need to liquidate their US Treasury security holdings. Both of the above moves effectively reduce the interest rate (or not increase it) and hence the stock markets are unlikely to plummet. The stock markets will go down somewhat as Yamaichi's failure is being perceived as a symptom of a cancerous Japanese (or Asian) financual system. But, there is unlikely to be any panic, given (further) that the Japanese Govt has reiterated its stand to infuse public funds into the banking system. Even tech-stocks may rebound or not decline too much, except the ones pumped up with helium, like YHOO, IMHO. Sankar GOOD NIGHT!!

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