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Strategies & Market Trends : India Coffee House -- Ignore unavailable to you. Want to Upgrade?

To: Lee who wrote (4762)	6/28/1999 5:04:00 PM
From: Mohan Marette	Read Replies (1) \| Respond to of 12475

Lee:I guess it will be ok to discuss anything here,anything goes as far as I am concerned and I don't see why anyone would object anyway.Besides there aren't too many people here to object to anything<vbg> I am right now using this as my bookmark,no point in wasting my hard drive now is there.<g>

To: Lee who wrote (4762)	6/28/1999 6:15:00 PM
From: Andy H	Read Replies (2) \| Respond to of 12475

Fed: continued from Broadcom thread 1. I am not a Greenspan fan. He hasn't done too much damage, but I believe the deflationary forces continue with little regard the persistently high level of interest rates. 2. Remember, since Greenspan came on the watch, we have had three bear markets (1987, 1990, 1998), and one long correction in 1994 which hit individual stocks hard, although not the averages. Each time, the cause was either raising interest rates far too high-as in 1987, 1990, and 1994 and last year keeping them far too high (real interest rates rose quite a bit last year). The proof of this is the very short duration of each bear market when Greenspan corrected his mistakes by easing after the liquidity crunch he created caused a market panic unrelated to the economy. This is why each of these bear markets failed to precede a recession (the 1990 bear was concurrent with a minor recession, but again that bear as measured by the Dow lasted less than three months). If these bears were caused by poor economic conditions as in the 1970s, they would have lasted longer and not been cured by lowering interest rates so quickly. Each of these bear markets was caused by artificial selling occasioned (perhaps by chain reaction) to overly tight credit conditions. Last year's debacle was the most obvious example. The long bond's spike to around 4.75% was so rapid due to short covering from hedge funds and panic buying from panicked stock sellers. This is why bonds went up as fast as stocks went down into the October low, rather than moving in tandem as they usually do. Of course, it cannot be proven whether these Greenspan engineered credit crunches helped reduce inflation since we don't know what would have happened without the increases. Only in 1994 did I agree that up to a 1% increase was warranted since the real interest rate at the time was about 0! Greenspan went way overboard and raised rates at least 3% over the course of a year, and caused the worst bond market in recent memory due in large part to the forced liquidation of the short-long bond carry trade-see Orange County for an example of how that worked. Greenspan seems to have learned from the 1994 fiasco and has held his (gotta be doing something) trader mentality in check better now. However, he and his fellow board members are very antsy that they should be doing something to justify their exalted existence. The whole concept of raising interest rates to control inflation is erroneous-similar to bleeding a patient to cure whatever ails it. Slowing the economy enough will eventually reduce demand, but at a tremendous cost, making this strategy a very crude instrument. Of course, if we had a better Congress and President, we could cut taxes on labor, which in effect allows for a pay increase without squeezing margins or forcing price levels to rise to compensate. Eliminating or reducing the corporate income tax, too, would keep prices falling, since aftertax margins would be much higher initially, there would be plenty of room for price competition to get after tax returns on capital back near historical levels. If you made it this far, thank you for the opportunity to vent my dislike for Greenspan and document my opinion of his effect on the stock market. For the person on the Broadcom thread who asked about recent book(s) on the Greenspan fed, there is one called The Confidence Game, written two or three years ago, which is now in the $5 bins at some bookstores. It has a very good chapter on the 1987 crash and the liquidity issued facing the fed on settlement day the Monday after the crash. Otherwise, the book carries on the tradition of the Secrets of the Temple book while discussing other central banks around the world, too. The most important thing I gleaned from the book is that the number one job of the Fed, higher than that of inflation fighter, is insure the liquidity of the national and international financial markets-called the plumbing of the financial system in the book, and avoid a liquidity meltdown (which we may have come close to last year).