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To: Lucretius who wrote (56441)	8/13/1999 8:01:00 PM
From: pater tenebrarum	Read Replies (3) \| Respond to of 86076

Luc, an interesting opinion from another message board: (author is John G.) Today's market action Blast off in the morning - mini blast at the close. It was the desperate sort of panic buying on moderate volume that characterizes a bear market rally. The psychology is important. The institutions were desperately buying as if they might miss something. Fear of being left behind. You could smell it all day. The producer prices show more substantial increases for the crude and intermediate goods. That trend accelerated with this release. Indeed, inflation increases only very gradually. It takes years for PPI and CPI to go from 2% to 5%. But because what cannot happen in the statistics did not happen the market went wild. A classic reaction. Today's money managers have never seen accelerating inflation before and simply have no clue what to expect. Many bears on this thread accuse the government statisticians of cooking the numbers. In truth they don't have to. The politicians have already done it for them by deciding what items to measure. Thus, a big component of finished goods are "computers." The game is even more egregious in the CPI. They removed home prices in 1982 and substituted "rental equivalents" which are, of course, a proxy for falling interest rates. Despite the fact that only 50% of the population use PC's, they are a part of the CPI, while the increasing items for that same population, such as college tuition, are excluded. The index is loaded with stereos and other appliances imported from Korea and Thailand, while things like domestically produced autos are adjusted for "quality improvements." A new Chevy Camaro costs only $7,800 in our CPI because of these improvements. To contain food costs, we have "substitution effect adjustments. As people shift from beef to less expensive chicken, the price of beef counts less. Inflation will stay contained if, because of rising food prices, we all switch to dog food. A math Ph.D. friend who has worked on the CPI assures me that the CPI number is honest. "It is exactly what it is". Indeed, but it has little to do with inflation. And that is why Greenspan never speaks about PPI or CPI as a leading indicator of inflation in his testimony before Congress, but prefers to focus on the Employment cost index, import prices, commodity prices and other more relevant measures. He knows that the headline PPI and CPI numbers are political artifacts, a 20th Century equivalent of "let them eat cake", or is it dog food? The mystery is why the market could care about such things. It stretches the imagination that the market could care about such a pure social ritual. It is as if we must have a screaming relief rally because the headline number will not scare people away from sending more money to Wall Street. It is about spin and the ability to manipulate the perceptions of Joe Sixpack. It has little to do with the real return on securities, but perhaps such things as discounted returns simply don't matter any more. In any event, the NDX is now in overbought territory, and is due for a slide. The S&P is close. The NDX has retraced slightly more than 50% of its recent slide, and might make it to 61.8% or 2330 on Monday. The S&P looks like it could reach 1340. Several pieces of interesting news. The gold stocks don't buy the idea that inflation is dead. The went down only very modestly today. More important, the Semiconductors, the group that has been on a wild ramp since the beginning of June, has underperformed the Nasdaq 100 for the past few days. This is important, because we cannot have any meaningful Tech sell off until the SOX starts moving south. Its weakening RS relative to the NDX is an interesting portent. Finally, today's tape action shows us that the bullish sentiment is alive and well. Volume tells us that the bulls do not have the money they had in January or April. But the sentiment also tells us that bond bulls waiting for deflation must be patient. With sentiment still in such and agitated and euphoric state, the arket is going to have to go down several thousand Dow points before the economy will begin to weaken and bonds gain. And once the market does tank, you must be on the alert for panic at the Fed. If they flood the economy with money, gold is likely to do better than bonds.

To: Lucretius who wrote (56441)	8/13/1999 8:19:00 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 86076

another piece of depressing news: Fed Funds were at 5 1/16% when the futures closed, slightly higher than the 5% rate that traded when the Fed added $2.675 billion to reserves with 4-day repos and an additional $877 million with a COUPON PASS covering maturities from April 2000 to January 2001. I'm absolutely certain the maniacs looked upon this as Uncle Al helping them along their merry way. Good ol' Uncle Al.