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Politics : Idea Of The Day

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To: IQBAL LATIF who wrote (18178)	4/28/1998 3:54:00 AM
From: IQBAL LATIF	Read Replies (2) of 50167

My view of the WSJ induced move yesterday= and some strange questions on rising rates. Like programmed chips the sellers were out in full force to sell the markets-- it was just discovered yesterday in WSJ that we may have rising interest rates not falling. In between the two positions lies in waste the entire intellectual exercise we had sice Oct the emphasis was always that ASEA will wreak havoc on US demand and corporate profitibility. Now with that behind us the cassanderas are in full force to sell the market for wrong reasons. The market needs consolidation and I think I have been very much on the ball with that prediction I will rather think that it was the easiet think to keep harping the selling mantra now comes the difficult part to suggest where are we heading into dust or back to new highs. I will base my future strategy post ECI I have 65-45 bias in favor of a number which may disappoint a lot of sellers yesterday- even if ECI is unfavourable we will have next day NAPM and after that Unemployment number these threee in tandem will set the tone of the markets not only here but globally. We had this gap which I use to pound the table for 50 days MA which filled in very comfortably yesterday. I got out of my protective puts temporarily the premiums were too hefty to be ignored however I will re-establish only if 1085 is taken out decisively I will not even wait for a two days close. The scenerio I am looking at is confusion out of three numbers in next few days some may be comforting others not but in the end when all this selling will be over some one will realise that we are not being able to hit the stocks the way we could back in Oct-- the arbitrage possibility will let the shorts run for cover-- the stocks need to sell much more aggressively then I saw last night-- it is time to keep watch on bellweather again--- Like GE MSFT INTC IBM these are the stocks which should crack big time to see that level of 990 again --- as far as INTC MSFT IBM GE holding above support levels like 80 87 112 78 we may see that short covering rallies will be equally ferocious. So one need to nimble and play these markets with out confusion-- if ECI induces a sell off NAPM or unemployment will reverse the phenomenon why-- because strong economy means strong numbers and if profits keep coming interest rates direction will any way be nailed once the core inflation is shown as dead-- I am not sure about service sector pressures their has been some pressures on that front but I am pretty clear headed about this inflation pressure it is not going to show up as imported price stability and falling exports are signalling to me the direction. Lee one of our poster had a great call shorting bonds and I think if we see a sell off post ECI the great trade would be longing bond before inflation numbers. Keep focus on corporate profitibility this is the key to this market- Last time it was ASEA weakness which led to big sell off and test of 850 on SPM this time it is ironically perceived ASEA strength which is cause of selling. In other words the deflationary pundits have now become inflationary pundits. Markets are not about deflation or inflation rumors they are about bottom lines and last quarter has answered most of the gloom and doom prophets adequately. Until, domestic demand shows no slowing down and we still see ASEA continued weakness. Go for the oppposite trade. Don't forget that ASEA continued weakness will mean higher stock market not lower in present circumstances-- you know why? Because we are seeing this selling pressure emanating from infaltion worries and fears that FED is after all inclined to raise the rate as ASEA is behind us. Now once that logic of ASEA disaster affecting US corporate profits have been answered by first quarter earnings we have new reasoning ofcourse which has strong backers like Krugman and other economic pundits who believe that we cannot keep runing with present pace so we need interest hikes but does ASEA continued weakness not put spanner in the works ? Todays selling in ASEA if results in stable SPM will confirm my findings. Weaker global markets would translate into stable TB's yields and not rising yields. As now it is now fully established that US was minimally hurt by ASEAN crisis however with continued weakness the justification of higher rates become diffcult. Also rising rates will lead to higher risk to global monetary system in face of continued crunch in the global markets.This is the last thing Fed wants. Imagine that if this selling has to continue we need to see ASEA/ Europe coming back up that is the whole logic of this selling on strength of economies not weakness. I wish WSJ guys would have scratch the surface a little deeper. We have here a good situation we need for US selling to continue ASEA/Europe to be bid and bid well-- if these markets are sold off then will the Oct worries not come back to haunt AG- will he not think twice before raising rates. So out goes from window the whole concept of rising rates. I need to see consolidation in ASEA/Europe as a pre-requisite for selling in US to continue, strange but such is topsy turvy logic of Idea thread. In absence of consolidation in ASEA and Europe we will see flight to quality resuming and long bond rates retreating leading to resumption of normal trading in US, as this is already established in Oct that global meltdown does not hurt UScorporate profits too much..Deviation from norm but with present set of logic needs certain pre-conditions to be fulfilled. So for me the trade is long ASEA? If rates are going higher-- higher rates means higher demand in US- leading to higher exports from ASEA and if AG thinks that global markets are ready for a rate hike than ASEA is ready for running up too-- this selling needs some more justification at the moment it has not much. WSJ article is one big example of how banal finanacial journalism in US has become it is close to irrelevance if you just ask few questions. These are some questions my answers may not be adequate but I need to raise this in a forum -- may be someone will guide me better.

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