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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: d:oug who wrote (40223)	9/14/1999 10:34:00 PM
From: Ron Struthers	Read Replies (1) \| Respond to of 116790

Doug, didn't get a chance to stop by at the end of August after Greenspan's testimony It seems I had little company with my opinion in July that the FED and Greenspan were targeting asset prices (stock market) with their interest rate policy and certainly the markets, thus far have ignored this. However, Greenspan's late Aug. speech was dedicated totally to assets prices and the economic effect and FED policy. I believe it is becoming clearer that the FED intends to end the stock market bubble, hopefully gracefully, but historically bubbles never end this way and Greenspan is quite aware of this difficult situation. Following is a few highlights from his speech that clearly indicate the FED concerns. "As the value of assets and liabilities have risen relative to income, we have been confronted with the potential for our economies to exhibit larger and perhaps more abrupt responses to changes in factors affecting the balance sheets of households and businesses. As a result, our analytic tools are going to have to increasingly focus on changes in asset values and resulting balance sheet variations if we are to understand these important economic forces. Central bankers, in particular, are going to have to be able to ascertain how changes in the balance sheets of economic actors influence real economic activity and, hence, affect appropriate macroeconomic policies." Mr. Greenspan's conclusion here is pretty straight forward in how important asset prices are to economic forces and that these have to be confronted with monetary policy. "In conclusion, the issues that I have touched on this morning are of increasing importance for monetary policy. We no longer have the luxury to look primarily to the flow of goods and services, as conventionally estimated, when evaluating the macroeconomic environment in which monetary policy must function. 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. Accordingly, we have little choice but to confront the challenges posed by these questions if we are to understand better the effect of changes in balance sheets on the economy and, hence, indirectly, on monetary policy." Unless the stock market and/or the economy cools off significantly, we can expect further interest rate increases. The FEDs decision to also increase the discount rate this time around also signals their resolve and it is noteworthy to point out that this last increase in both rates was from a supposedly neutral monetary stance by the FED. The market is priced extremely high and the risks in the market with unprecedented high valuations and rising interest rates mean one's exposure to equities should be low. Ron