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Technology Stocks : Discuss Year 2000 Issues -- Ignore unavailable to you. Want to Upgrade?

To: David Eddy who wrote (8709)	9/18/1999 9:29:00 AM
From: Hawkmoon	Respond to of 9818

Lacking real facts, the Fed tightened up & pushed folks over the edge which just compounded into a downward spiral Agreed. And I think history has shown the Fed now recognizes how wrong the '29 response was. The 1987 crash actually resulted in a greater one day loss on the market than in '29, but the Fed's response was to flood the system with liquidity and prevent the seizing up of economic activity. It is interesting to note that the majority of banks did not start to collapse until the early '30s and that by '33, over 1/2 of all US banks had gone belly up. So it required several years of stupid policies to cause this collapse. And I also believe that this is one of the reason's that Greenspan has been jaw-boning the economy about relatively non-existent inflation. He is worried about the recent heights of the market and desires a lengthy consolidation of these levels and a squeezing out of margin positions (people using margin to buy stock in companies that don't net enough of a return to justify paying the margin interest). One of the anomalies of the '29 crash were that many folks were so confident and irrationally exhuberant that they had margined their stocks by 90%. When the value of their assets collapsed in the crash, they were still left holding the obligation to pay off their margin debt. But subsequently the Fed limited margin to 50% of equity. And we see something similar to that as they limit margin on internet stocks to 20% (requiring 80% collateral). And it is one of those tools that I thing the Fed should use more often to control market excesses. Instead of hiking interest rates on the entire economy, they should target the area which they consider overvalued, namely the market. They could tighten margin requirements on stocks that are SEVERELY overvalued, forcing people to invest in them solely on a cash basis. So in sum, the longer this market consolidates, making only minimal new highs to prevent a negative market indicator like a head and shoulders pattern, the better we should stand for Y2K... and thus, the quicker we should recover from any market disruptions due to negative investor psychology. Regards, Ron