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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (29346)	10/15/1999 2:29:00 PM
From: Lee	Read Replies (1) \| Respond to of 50167

Hi Ike,..Re:.bond trade suggestion, that was a 100% winner call, both ways we would have made money, Good trade on the bonds. Also, sound thinking on the possible outcomes. <g> Just got filled on the CSCO Nov 65 calls, (at my price too). <g> Best, Lee

To: IQBAL LATIF who wrote (29346)	10/17/1999 11:29:00 AM
From: ayahuasca	Read Replies (1) \| Respond to of 50167

I dont believe I have posted here before, but I have been following your thread for a while now. You market insights are among the best I have seen. I appreciate your sharing with all of us. Keep up the good work. Now the reason for my post. With virtually no signs of inflation until recent reports (and even those are questionable as to what they show), the Fed has twice raised interest rates in the past several months. From what I can tell there are three primary reasons for those rate hikes- 1) a strong economy makes people believe that inflation is inevitable 2) taking back what was 'given' to the market last year (the three rate reductions of last Fall). 3) concerns about an overextended market with 'unsupportable valuations'. None of these reasons seems very supportable unless you use history as a guide. #1 above is the first flawed assumption. I agree with you Ike, that we are in the midst of a revolution here- the models of the economy are changing and changing rapidly. We are becoming an economy driven, almost exclusively, by technology. To date technology is still only a small part of the economy, but it is growing at a very rapid rate. This is a wonderful thing because it fundamentally changes the way models of economics work. The primary thing driving the tech boom (which I dont see an end to in the near future)is the internet. It is making our society more efficient- both for the consumer and for businesses. There is some major cost cutting going on and some important streamlining of businesses. This trend should continue and with it continuing increases in the levels of productivity. Such a scenario does/would allow for rapid growth with low-modest inflation. #2- last year the Fed gave us three rate cuts in the face of economic turmoil in the rest of the world (Asia-Russia- Latin America). The fear was that this could spill over to the US and cause a recession- so interest rates come down in order to stimulate growth- a counterbalance. Now that the outlook isnt nearly as dire (and in many cases it is positive), the thinking is that it is time to tighten up again. The opposite thinking would have to be employed here. The world is back on it's feet, the US economy is strong, maybe it's time to discourage growth a little in order to prevent any overheating and consequent price increases (inflation)- again a counterbalance. This seems pretty logical reasoning. However, if one assumes that the strong US economy is the result of growth almost exclusively in the tech sector then the fears of rising prices becomes a bit flawed. As I mentioned above I believe that the tech growth is fueling efficiency and productivity- not rising prices. This is fundamentally different from the growth of the past. But since that seems to be the primary guide for the Fed, they are using the old and I think faulty logic. #3- Lots wrong with premise number three. It should not be the Fed's job (and to my knowledge it isnt) to control the stock market. Also, again this thinking is based on historical comparisons, which to my mind are no longer relevant. The kinds of growth today are a far cry from what they were even a few years ago, much less 1929 or something. There is just no denying that things can and do happen at a much more rapid pace these days. Significant advances occur at a much, much higher frequency than they did in the past and these advances are making our world more efficient. Technology grows so that prices dont have to. Also, if you do want to use historical measures, it is only about 1-2% of the market that is wallowing at levels deemed as 'irratinal exuberance'. The vast majority of stocks do not trade at 30+x earnings but something alot closer to 19-20x. This is really quite in line with historical multiples (maybe a little higher but not much). Now the whole market is worried about the third cut to complete the takeback from last year. The threat of this hike (lets remember we are talking about 1/4 point hike- really nothing that is going to effect much of anything), has had enourmous psychological consequences on this market. It is unbelievalbe. The threat of the hike seems to be so much more ominous than the actual hike itself. I just cant believe that so many people are terrified of this. It's so silly. I guess now people will say that they are fearful of more than just one more rate hike. I just cant see it happening anytime in the foreseeable future. It is all this big psychological fear and it will turn on a dime. I have come to realize over my several years of following the markets (I havent been at it as long as most of you here- I'm still in my twenties), that it is all a big psychological game. If a few 'important' people start raising red flags it begins to trickle down and ultimately things often become self-fulfilling prophecies. Let me give a real-world analogy. I was at the Yankees game on Thursday night. I happen to love the Yankees and have since I was a boy. My seat was on ground level but probably about 50 rows back or so. I wanted to sit in my seat and enjoy the game. The problem was that every single time there was anything of consequence going on, people would start to stand up. I can root just as loudly and meaningfully sitting as standing. I wanted to sit, maybe stand occasionally, but not every other batter or something. When the people in the front rows started to stand, it would force the people behind them to stand, and so and so on. It was a chain reaction. Whether you liked it or not you had to stand when the front rows did or simply miss the game. The market works the same way. When momentum is dictated by the big guys (those in the front row, like Mr. G), whether the reasoning is sound or not, others have to follow- either that or be left blind to the game. Eventually, you have to either capitulate early (stand when they do) or wait for the momentum to go in the other direction (wait til they sit down again). The problem is that the leaders dont seem to get it, but they lead nonetheless. I guess that is the nature of the markets.