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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (28367)	8/24/1999 10:30:00 AM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

You are right John but the point is these guys are holding on they did not square.. lets watch this game carefully and enjoy anyway the element of surprise is just not there anymore. We know what's happening when it happens! Interesting article John.. Fed Watching: Plan of Attack Dateline: 08/24/99 by Robert J. Rak -------------------------------------------------------------------------------- Tuesday the 23rd brings with it a Fed meeting, one which a majority of market participants believe will result in a 25 basis point (1/4%) rate hike. And About.com users are no different. When last I checked, more of you felt a hike was imminent than didn't, almost 2-1. I'm in your camp. But, I need a game plan no matter what happens. The way I see it, there are 3 basic scenarios which can play out: No hike (unlikely) 25 basis point hike (most likely) 50 basis point hike (least likely) No Hike If we get no rate hike I think there will be a big headfake. What I mean is initially the market rallies. Participants will get quite euphoric as the general rule is lower rates are good for stocks, higher rates are bad. But, I see it differently. I feel after the initial rally we sell off. And sell hard. Why? No uncertainty has been erased from the market. We will still be waiting for one, and possibly two, hikes from the Fed. If there is one thing the market hates more than a rate hike it is uncertainty. And with no hike none of it is erased. It will still hang over us like a dark cloud. 25 Basis Point Hike This looks like the layup, the easiest situation to read. And that probably makes it the most dangerous one. Most believe the market more or less has 25 basis points priced into it which would imply limited or no downside when it happens. In fact, the relief from expectations being met probably brings out buyers and we have a nice rally in the afternoon. How strong a rally? It all depends on the bias. If the Fed announces a bias toward tightening the rally is muted. If it adopts a neutral bias we can really run into the close. Of course all of this depends on how much we run up Tuesday before the meeting, which will be in addition to Monday's rally. 50 Basis Point Hike To me this scenario plays out oppositely from the no hike scenario. At first we drop as those quick triggered players see a 1/2% hike and want to get out like all hell broke loose. But I feel smart money then steps up to the plate buying the dip. Why? Most market 'pros' feel we get 50 basis points at most by the end of the year. If we get it all in one shot there is no more interest rate uncertainty for 1999. It has been erased. The fear is 'gone' and now we worry about Y2K. Consensus? The one thing worrying me is of all the people I spoke to, NO ONE agrees with me. Why be worried if I believe the crowd is usually wrong? Because the worry could cause me not to follow my plan. And when I don't, there is a 100% probability of me being right. Right if I acted. But since I didn't, I get nothing for my homework. Gotta practice what I preach. STICK TO THE PLAN!