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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Chip McVickar who wrote (2330)	12/22/1999 11:16:00 AM
From: Henry Volquardsen	Read Replies (2) \| Respond to of 3536

Hi Chip, the infusion of liquidity is indeed interesting. the net effect is that they have been priming the liquidity pump while using higher rates to try and cool things off. very clearly they have been working at cross purposes. I can't see how this can turn out to be a wash. Some of that liquidity has had to find its way into asset markets. There is also no question that the Fed will try to take some of that liquidity back when we are safely past y2k. My suspicion is that it will have the effect of causing the exact opposite of what the apparent conventional wisdom appears to be regarding the next few months. Everybody seems to be anticipating a January effect. I suspect we have already seen much of it in December, fueled in part by the excess liquidity. I'm inclined to think that the first quater will be corrective for equities after we get passed a knee jerk rally in the first week or two. Just to put it in perspective, however, I remain positive for the longer term and am only selling selectively. I intend to use any correction in the first quarter to add to a few positions. I don't expect the corrective action to approach bear dimensions. jmo. At some point I would like to start a discussion about what the impact of a prolonged tech correction would have on the underlying economy. I've been having some interesting discussions in that regard. There is a second element of the current conventional wisdom. Everyone I speak to seems to believe we will see another rate hike in February. I believe the Fed did not announce a tightening bias at the recent meeting because they know they will be removing liquidity in the first quarter and that that will have a tigtening effect. So I believe the there is a strong chance the Fed will ride out the Feb meeting with no change while they wait to see the effect of withdrawing liquidity. Re Japan Only solution is a massive restructuring as in our banking crisis and there is no political will for this to occur in Japan........Japan's serious problems will dominate its structure for the next 25 years..., it is very possible their entire elderly working class population will find their savings dramatically reduced with any plan that brings balance to the monetary complications of the government. It's appalling and could become very sad? I absolutely agree on all those points. I have spent a lot of time thinking about the Japanese and haven't found an easy solution. While others might demur at the idea it could take 25 years to sort out I can't help but thinking along the same lines. My own thinking has been more along the line of 10 years but that may be optimistic. And I agree it could be very sad.