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

To: Fun-da-Mental#1 who wrote (23803)	8/25/1999 3:51:00 PM
From: Les H	Respond to of 99985

Millennium bug could benefit U.S. home owners By Mark Egan WASHINGTON, Aug 25 (Reuters) - The millennium bug may crash computers and wreak havoc around the world, but the computer glitch could put cash in the pockets of American home owners just in time for Christmas, economists said on Wednesday. Many investors in countries such as Germany, France and Japan, as well as in emerging economies around the globe, are concerned their domestic financial markets may be vulnerable to the computer glitch. Those worries, economists said, could unleash a chain of events that could boost the wealth of the average American by offering an opportunity to refinance home mortgages at attractive rates. The potential Year 2000 computer problem is caused by coding shortcuts taken in older computer programs that might lead them to confuse Jan. 1, 2000 for New Year's Day, 1900, potentially causing system-wide shutdowns. Jim Smith, chief economist at the National Association of Realtors, said investors in some countries might rush to invest cash in U.S. Treasury securities, which are seen as a safe haven. That would push Treasury yields lower causing lower mortgage rates, he said. ``Most analysts anticipate a flood of capital coming into the U.S. in November and December,' Smith said. He estimates foreign investors could send between $200 billion to $300 billion into the United States in November and December as they attempt to protect their money from any effects the computer bug might have on their domestic markets. That could push yields on the 10-year U.S. Treasury bond, which is used to set U.S. mortgage rates, down which could send mortgage rates lower by a full percentage point, he predicted. ``When capital comes to the U.S. people want it too be safe. If some of that money goes into 10-year U.S. Treasury securities then you could have a window for refinancing mortgages and buying homes around Thanksgiving,' he said adding that mortgage rates could fall by a full percentage point, making it attractive for millions of Americans to refinance their mortgages. Due to the costs in refinancing a home mortgage, rates typically have to dip by a full percentage point to make it worthwhile for the average home owner. Bill Cheney, chief economist at John Hancock Financial Services in Boston, expects foreign Y2K fears will have some effect on the U.S. Treasury market but said predicting exactly what that effect might be was a ``wild guess.' ``There has been a lot of discussion of the effects of the Y2K bug and there have been a lot of plausible ideas put forward,' Cheney said. ``This is certainly one of them. But the problem is that this is a unique event, so how do you calibrate for that?' Cheney said that he expects some emerging market investors from countries such as Peru might seek to shield themselves from domestic Y2K risks by investing in the U.S. but said it was ``implausible' investors from sophisticated European markets, such as Germany, would boost their U.S. investments due to the heightened exposure to exchange-rate risk that comes with such a move. David Orr, Chief economist at First Union Corp., said the idea that millennium bug-related foreign capital inflows has generated much discussion among economists lately. ``It is a topic of conversation and if it does happen it would be positive for mortgage rates, but not as positive as it might appear on first blush,' Orr said. He said that foreign investors would typically invest in shorter term securities with maturities of a year or less meaning that any inflows might have little impact on the mortgage market which uses the 10-year Treasury as its benchmark. On balance, Orr concluded, the millennium bug might benefit American home owners but, as with most predictions being made on Y2K issues, the final outcome is simply unpredictable. >>>how's that for spin?

To: Fun-da-Mental#1 who wrote (23803)	8/25/1999 4:05:00 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 99985

in fact it's now at a point where an incredible melt-up a la Japan '89 seems increasingly likely. i have always expected this to happen at some point and we seem to be well on our way. i would not be surprised at all if the Dow were to reach 18,000 or more within six months or so. judging from the japanese precedent, bond yields would have to rise to about 8% to stop the advance. as of now there are still enough bears out there to suggest that we are far from the point where even the last janitor has been sucked into the market(this is not to suggest disrespect for janitors - they merely serve to illustrate the point). the fact that the market continues to advance sharply in the face of a Fed in tightening mode(don't believe for a second that they are finished tightening)shows that we are way past the point where fundamentals count for anything. without wanting to rain on the parade, i would like to point out that the same thing happened in '87 - the Fed had embarked on a tightening cycle and the market ignored it - up to a point. the main difference between then and now is that the Fed is now trying to manage the bubble - in spite of protestations to the contrary - which of course is a virtual guarantee for it's further inflation. in the end the Fed will be damned to try and fight it - which will lead to the same ultimate outcome suffered by all previous bubbles. in fact the Fed is to blame for allowing the bubble to come into existence in the first place - and now it obviously doesn't have a clue what to do about it. it will be no fun at all when it finally bursts...