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To: jmac who wrote (39612)	9/2/1999 10:34:00 PM
From: Jon Koplik	Read Replies (1) \| Respond to of 152472

John Liscio's "take" on Fed / Jackson Hole speech stuff. WHEN BAD REPORTING MEETS THIN MARKETS I spent the weekend pouring over at least two dozen accounts of Greenspan's Friday speech at Jackson Hole and came away with one overwhelming impression: The journalistic and analytical community must have heard a different speech. Having covered scores of market-moving speeches by the likes of Greenspan, Paul Volcker, Henry Kaufman, and Al Woljinower, I know all too well how these things happen. Reporters, who are under tremendous pressure to beat the competition (Dow Jones & Reuters actually employ spies who covertly monitor each other and keep a running tally of "beats"), run to the phones the moment they think they?ve heard or read a newsworthy nugget. Far more often than not the early headlines set the tone for the day's trading. And, since news is a dumb stepchild of price action, the majority of subsequent commentary reflects those early headlines. On Friday, the first headlines flagged Greenspan's disputation of the level of corporate profits. Some stated outright that the Fed chairman said they were too high. Witness this dispatch, which the Wall Street Journal editors thought enough of to run in today's paper: JACKSON HOLE, Wy. -- Federal Reserve Chairman Alan Greenspan said Friday the U.S. central bank would intervene in financial markets to correct a sharp and sudden increase in stock prices -- but he added such increases seldom occur. "Central banks cannot respond to gradually declining asset prices. We don't respond to gradually increasing asset prices," he said. But if stock prices made a sudden "180-degree turn" -- with the potential to create liquidity problems -- the central bank would be bound to intervene, he said. "If such an event arises, the reality is we would respond," he said, but such situations "almost never" arise. A truly amazing example of lousy reporting, bad writing and absentee editing, the above article begins with a questionable assertion (Greenspan said the Fed would intervene to correct a sharp and sudden increase in stock prices). That's quickly followed by a contradiction within a contradiction (if stock prices made a "sudden 180-degree turn" they'd be falling, and "the potential to create liquidity problems" is something the Fed would "respond to" by easing, which isn't made clear.) The third sentence finally ends with a good reason not to have cobbled this doggerel into a headline item to begin with, vis a vis: "he said such situations "almost never" arise." Overwhelmingly, the take on Greenspan's speech was that he thought corporate earnings were overstated, saw the rise in stock prices as a clear and present inflationary threat, and stood ready to tighten if stocks vaulted higher. But virtually the exact opposite is true. In reviewing the various factors that can both overstate and understate earnings, Greenspan concluded that "it is reasonable to surmise that undercapitalized expenses have been rising sufficiently faster than reported earnings to have more than offset the factors that have temporarily augmented reported earnings." So the headline about overstated corporate profits that launched thousands of sell orders was ass-backwards, and on a Friday in late August the bond market overreacted. Both the statement accompanying last week's 1/4 percentage-point hikes in the federal funds and discount rates to 5.25% and 4.75%, and the recently released minutes of the previous FOMC meeting indicate a shift in the zeitgeist at the Fed. There's been a lot of bearish second thoughts on last Tuesday FOMC announcement, but the words speak for themselves. The FOMC said the moves "should markedly diminish the risk of rising inflation going forward." And unlike the message delivered with the previous rate hike, the FOMC omitted any pledge to stand ready to act again should any signs of inflation emerge. An equally important bit of news came from a summary of the June 30 FOMC meeting, which revealed a less hawkish if somewhat contentious mood among the panel. Dallas Fed President Robert McTeer even dissented, voting against a tightening move. Copyright ¸1998 TLR. All rights reserved.

To: jmac who wrote (39612)	9/2/1999 11:30:00 PM
From: FlameMe	Read Replies (1) \| Respond to of 152472

OT - I agree that there isn't a stock market "bubble". If you listen to the bears, they talk out of both sides of their mouth. On one hand, they say the market is wildly overvalued like never before. On other occasions they talk about the terrible advance/decline line and how most stocks have been in a bear market for two years. They note all the 52 week lows, etc. If all these stocks are going down, how can the market be a "bubble"? Whoever owns all these that are doing nothing certainly aren't feeling "the wealth effect". It seems to me that the S&P has a high P/E because big growth stocks make up most of the weighting of the index and they are expensive. But, they are also growing earnings rapidly. There are other reasons why the S&P's P/E is high. They change the index all the time. It had some stodgy slow growers in the past. In addition, the '70s and '80s had much higher inflation than we have now, which leads to lower P/Es. And, if you listen to Greenspan, earnings are probably understated (opposite of what the press reports he says). Anyway, even with all that, the thing is only up 7% for the year. So, while there may be pockets of overvaluation, I doubt the entire market is wildly overvalued as they say. Regards, Ross