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To: John Chen who wrote (75639)	8/28/1999 10:20:00 AM
From: H James Morris	Read Replies (3) \| Respond to of 164687

>>Maybe the bubble will keep growing forever.<< John, no not for ever. Trust me on that. I liked what you had to say in this post. Look! this is the skill, keep at least 1/2 of your hard earned cash in conservative investments, and only speculate with money you and your spouse can really afford to lose. Trying to catch up to William who only paid 5ps for Yhoo will surely eventually break your backs. If you lost all your money who would look after your lovely spouse? William?? I doubt it. Mark F? Probably not. Me?? You bet! In a heart beat.;-) >>ASSOCIATED PRESS August 28, 1999 WASHINGTON -- The Federal Reserve needs to pay closer attention to what happens on Wall Street, Chairman Alan Greenspan said yesterday, since Americans reaping the rewards of the high-flying stock market are using those paper profits to justify spending and other financial decisions. Stock prices declined after his speech, but there was no big sell-off. The Dow Jones industrial average closed down 108 points in quiet trading. Some economists interpreted Greenspan's comments as a signal that the Fed may further raise interest rates this year. Two previous increases -- this week and on June 30 -- have failed to dampen the Wall Street stock-buying "exuberance" that Greenspan has expressed concern about. "We no longer have the luxury to look primarily to the flow of goods and services, as conventionally estimated," when evaluating broad economic conditions, Greenspan told colleagues at the Federal Reserve's annual retreat in Wyoming's Grand Tetons. The text was distributed in Washington. The Fed's recent interest rate increases have been aimed at easing inflationary pressures that central bank policy-makers fear are building in the economy as U.S. consumers continue a protracted spending binge. Despite the announcement Tuesday of this year's second quarter-point increase in the influential federal funds rate -- the interest rate at which banks lend each other money -- the Dow Jones average of industrial stocks hit a record high of 11,326 Wednesday before declining a bit the next day. "The concern is this: The major driver of consumer spending right now is the stock market. Until and unless we can reduce some of that unwarranted enthusiasm in the stock market we are not going to be able to slow consumer spending for a soft landing," said Sung Won Sohn, chief economist with Wells Fargo & Co. in Minneapolis. There has long been a debate in economic circles over whether financial markets should be taken into consideration when the Fed sets interest rate policy. Since a primary goal of the central bank is to keep inflation in check, some argue, it needs to focus mostly on price changes in the real economy, looking at such things as whether commodity prices or wages are rising too quickly. Greenspan, however, said in yesterday's speech that given the larger percentage of household wealth that is now accounted for by investments, the central bank needs to watch financial markets more carefully. Greenspan's own money is mostly in Treasury bills, not stocks, according to his most recent financial disclosure form. It said the value of his assets in 1998 ranged from around $2.5 million to $6.4 million, less than the range of around $3.4 million to $7.3 million he reported for 1997. An estimated 44 percent of American households owned stock either directly or through retirement plans in 1998, up from 20 percent to 25 percent about a decade earlier. "There are important -- but extremely difficult -- questions surrounding the behavior of asset prices and the implications of this behavior for the decisions of households and businesses," Greenspan said. The difficulty for economic forecasters, Greenspan said, is that despite all the sophisticated economic models at their disposal, it still is virtually impossible to predict when a financial market becomes overvalued and a crash is imminent. "To anticipate a bubble about to burst requires the forecast of a plunge in the prices of assets previously set by the judgments of millions of investors, many of whom are highly knowledgeable," he said. But central bankers must put more effort into determining the links between stock-market values and the real economy, Greenspan said. He specifically said that further study is needed on something economists call the "wealth effect," the link between rising investment holdings and consumer spending. Such spending accounts for fully two-thirds of the nation's economic activity. "What was implied in his speech is that central bankers have to watch asset price inflation to a greater degree now than ever because consumers are spending based on at least perceived permanent gains in their stock portfolios and perhaps home prices," said economist David Jones, with Aubrey G. Lanston & Co. in New York.<<