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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: bobby beara who wrote (23508)	8/20/1999 11:41:00 AM
From: pater tenebrarum	Read Replies (2) \| Respond to of 99985

Bobby, re: easy Al: the Fed was at it again today, with coupon pass nr. 18(!) for this year. in all of '98 we had 7 coupon passes which added approx. $25 bn. to the system. so far this year approx. $ 40bn. were added already. to gauge the effect of a coupon pass on the economy, multiply the added reserves by a factor of ten...this is due to the circulation of the money added, i.e. A lends it to B who buys stuff from C who lends it to D who buys stocks from E who lends it to F, etc.; no wonder the economy keeps on overheating and the bubble keeps on expanding. apparently credit demand is totally out of bounds, for instance margin loans have now expanded to nearly $190bn., an all time record and a truly staggering sum. i have the distinct impression that the Fed, despite protestations to the contrary, is actively engaging in bubble management. my prediction for the August FOMC meeting is now that rates will probably remain unchanged and the neutral stance will be kept. all we will get out of that meeting will be words...'the Fed will remain vigilant, bla bla bla..." i can not conceive of a rate hike to coincide with massive liquidity injections. the more sinister interpretation calls for the Fed knowing something we haven't been apprised of yet and the liquidity injections being a preparation for a bit of news that will shock the markets. if - and i admit it's a big if - rates remain unchanged, i would expect the bond to tank and take stocks down with it after an initial knee-jerk rally. obviously most people now expect a rate hike based on recent data such as ECI(up) and productivity(down). but easy Al's buddies at GS have already lost $100 mio. in the swap markets and who knows what other losses are lurking out there, since the widening in spreads by necessity must have put a lot of outstanding derivative contracts under water . as Jim is so fond of pointing out, Al's buddies take precedence over all other considerations. to believe otherwise would be naive. note that i am only speculating here, could be that the 1/4 point hike will come anyway, as they possibly reckon that the markets have priced it in already. just trying to provoke some debate really... regards, hb