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Strategies & Market Trends : Currencies and the Global Capital Markets
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To: Bobby Yellin who wrote (1117)12/22/1998 9:53:00 AM
From: Paul Berliner  Read Replies (1) of 3536
 
Henry, any idea today on a Fed move? I like how everyone has said that the worst is behind us and the Fed will stand pat... I have positioned myself for a cut - I know, very contrarion. I'm sick of listening to the experts - like all of 'em who wrote that if Chavez won the Venezuelan election that there would be an incredible capital flight from that area - they couldn't have been more wrong. I realize that I trade alot more successfully when I go by my own hunches, anyway.
Why do I think that they'll be a .25% cut today? 3 reasons:
1. U.S. yields are still too high, especially after the concerted
easing late Nov. by the EMU countries. The U.K. and the U.S. are throwing money out the window if they don't ease now - and their debt is of much higher quality than Italy's for crissakes. Also, countries like Mexico and Brazil, with their sky-high ST rates would be able to ease further should the Fed give the nod.
2. The corporate bond market still has yet to fully recover - spreads
are still way too wide for BB and BBB rated debt. This is of far greater concern to the Fed than worries about how high the market might shoot up should they ease today.
3. Companies right & left are announcing layoffs and capital spending cuts for next year. An ease would put more cash in the pocket of those companies as they'd obviously attempt to refinance high-interest obligations and would pay less interest expense on floating rate debt.
the choice is clear - the Fed must ease today or the economy will continue to slow. I give reason 3 the most weight.
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