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To: Giordano Bruno who wrote (68372)	10/12/1999 11:08:00 PM
From: paulmcg0	Read Replies (1) \| Respond to of 86076

You might be interested in what FRB Governor Laurence Meyer had to say about asset bubbles, in a speech he gave today, which is online at: federalreserve.gov Also, the Fed put out a technical paper earlier this year titled "Should the Fed Take Deliberate Steps to Deflate Asset Price Bubbles?" by Timothy Cogley, online at sf.frb.org . Since the document is in PDF format, you need the free Acrobat Reader software to view it, found at adobe.com . I learned some new vocabulary from the paper, perhaps something that Bill Fleckenstein could use in his column [grin]. If you have a stock market with crazy prices that are dramatically different from what you would expect from the fundamentals like earnings, dividends, etc., you have an "unexplained variation" and it's hard to tell if it really is a "bubble" or if there are "hidden fundamentals" !! One of Cogley's conclusions is that "the strategy of 1987 represents an example of a contingency plan for containing the damage associated with a market crash." And, what was the Fed's strategy during the crash of 1987? The President of the FRB in San Francisco briefly describes it in a 1997 paper titled, "The October '87 Crash Ten Years Later" online at sf.frb.org particularly the paragraph about how the Fed intervened. My opinion is that the Fed is willing to let the equity markets decline sharply, if it happens slowly (say averaging down 1% a day), instead of in a panic like in 1987 or 1929. So, perhaps in a couple of months, this "unexplained variation" will be over!