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Pastimes : Ask Mohan about the Market
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To: John Hunt who wrote (16898)10/31/1998 6:06:00 AM
From: John Hunt  Read Replies (1) of 18056
 
Latest Contrarian - Fed wants gain but no pain

stocksite.com

<< Part of what got the market all lathered up yesterday was an article in Business Week reporting that the Federal Reserve Board is watching U.S. credit markets. Apparently Greenspan doesn't think that the credit markets can be considered healthy until the difference (spread) between the yield in the most recently issued 30-year Treasury bond and the one that was in the months before ("off the run paper") returns to five basis points. It currently stands at 18 basis points.

Greenspan is a spread trader. So now he can ease if he perceives a credit contraction, if he perceives economic weakness or if spreads are too wide. These guys are flopping on the rug like a fish on land.

The bottom line is that the Fed is determined to print money until the cows come home, and it has been doing so. The ramification is a weaker currency, and at some point the bond market won't like it and the stock market won't like it. In the meantime, the stock market loves it, the bond market doesn't mind it and the dollar has been acting kind of heavy.

It is a brave new world and the Fed is on the stock market standard. The only thing the Fed is supposed to do - preserve the purchasing power of the currency - is the one thing that it doesn't seem to give a damn about. The Fed thinks it is supposed to preserve the stock market and the economy. I think that Greenspan believes somebody elected him economic czar. >>



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