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Strategies & Market Trends : Waiting for the big Kahuna

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To: William H Huebl who wrote (26608)	9/6/1998 10:24:00 AM
From: Philipp	Read Replies (1) of 94695

Hi Bill: Now see, I interpreted the Greenspeech as bullish. Before he was warning of possible inflationary impacts and now deflation and interest rate LOWERING is possible. Yes, it might be considered short-term bullish. In combination with a political stabilization in Russia (if it occurs) it might be enough of a pretext for a short-lived rally on Tuesday. But is not really new or unexpected. I don't think that there was anybody who believed that the next interest rate move would be an increase. The general gloom of the speech surprised me (US economy affected by world turmoil; stock market correction itself will negatively affect the economy). He was hinting at a recession, possibly even that we are in a deflationary spiral. He also repeated that we are in a bubble and have an inflated stock market (no new era talk here) and that these things tend to overshoot in both directions. We know the direction now, but how much will it overshoot in the negative direction? At the same time, I saw no indications that he is unhappy about the present value of the stock market (which I think he still considers significantly overvalued). So you cannot expect aggressive interest rate cuts as long as the stock market decline is fairly orderly (as it has been so far). Greenspan has repeatedly indicated in the context of exchange rates that it is not the Fed's task to determine the rates, just to make sure that any "reevaluation" of rates by the market occurs in an orderly, gradual fashion. For the stock market, that means he will try to prevent a crash if he can, but he won't try to move the market to a particular value. I have the suspicion that the Friday rally was intervention, since I don't see who else would have bought so aggressively. Any drop below the 20 % decline level would have caused an immediate crash on Tuesday in my opinion. Also a thin market on a Friday afternoon before a long weekend is a good intervention point (see the timing of interventions in currency markets). Finally I don't think that significant interest rate cuts will do much good at the moment. They confirm that the Fed thinks that we are in downward spiral which would be disastrous for market psychology (also compare Japan). So this is why don't see much positive in his speech for the next few months. Regards, Phil

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