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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Wally Mastroly who wrote (11149)	1/14/2000 8:52:00 AM
From: MrGreenJeans	Read Replies (2) \| Respond to of 15132

Greenspan turns up heat on Wall St. Fed chief warns of imbalances from equity wealth effect By Rex Nutting, CBS MarketWatch Last Update: 9:15 PM ET Jan 13, 2000 Bond Report WASHINGTON (CBS.MW) -- It's up to Wall Street to slow the economy and maintain the longest economic expansion in U.S. history, Alan Greenspan said Thursday. Either stock valuations will come down to Earth or interest rates will rise, he declared. "In the end, balance is achieved through higher borrowing costs." "If a trend cannot continue, it will stop," the Federal Reserve chairman said. "What will stop the wealth-induced excess of demand over productivity-expanded supply is largely developments in financial markets." Greenspan refrained from the kind of explicit warning about aggressive Fed policy many had expected in his speech to the New York Economic Club, but he made it clear that the Fed is ready to tighten monetary policy again and again. "Regrettably, we at the Federal Reserve do not have the luxury of awaiting a better set of insights into this process," Greenspan said. Most Fed watchers see an almost certain rate hike in early February, and some are even talking about a 50-basis-point increase, double the usual quarter-percentage-point move. Greenspan said nothing Thursday to settle that argument. Much of his speech repeated the now-familiar refrain from the chairman that the U.S. economy is enjoying a "once-in-a-century acceleration of innovation" from "veritable shifts in the tectonic plates of technology" that are rapidly reducing the costs of making, delivering and selling goods and services. The result has been a boom on Wall Street and Main Street. With stock prices at all-time highs, unemployment has reached a new low for this generation. "There can be little argument that the American economy, as it stands at the beginning of a new century, has never exhibited so remarkable a prosperity for at least the majority of Americans," he said. He also wove another familiar thread through his speech, warning that the optimism and exuberance of the past decade -- particularly on Wall Street -- could be "just one of the many euphoric speculative bubbles that have dotted human history." Most economic expansions eventually die from internal imbalances, he warned. "These extraordinary achievements continue to be bedeviled by concerns that the so-called new economy is spurring imbalances that at some point will abruptly adjust, bringing the economic expansion, its euphoria and wealth creation to a debilitating halt," Greenspan said. "There are limits," Greenspan warned. Productivity gains have boosted expectations of profits and fueled the bull market that has "engendered a huge gain in equity prices." The wealth effect, in turn, has boosted demand by a full percentage point each year, he said, putting the nation at risk that, at some point, the cushion provided by foreign investment, immigration and a growing labor force will fail. "It is this imbalance between growth of supply and demand that contains the seeds of rising inflationary and financial pressures that could undermine the current expansion.," he said. "For the equity wealth effect to be contained, either expected future earnings must decline, or the discount factor applied to those earnings must rise," he said. "There is very little evidence of the former." With profit expectations (and stock prices) continuing to head higher, Greenspan said it's up to debt markets -- perhaps with a few additional nudges from the Fed -- to slow demand by raising the costs of spending and investing. "The rise in real rates should be viewed as a quite natural consequence of the pressures of heavier demands for investment capital, driven by higher perceived returns associated with technological breakthroughs and supported by a centra bank intent on defusing the imbalances that would undermine the expansion," he said. Although inflation has remained "remarkably" subdued so far, Greenspan's Fed must still be "concerned about the potential for inflationary distortions," he said, because no one knows how much of the good news on inflation is the result of real productivity and sustainable labor-force growth and how much is simply luck. While many people with short-term memories can remember only the Fed of the past seven months -- the Fed that's fretted about "irrational exuberance" and raised rates and wanted to spoil the party -- the Fed has actually been very accommodating of the expansion, allowing the economy to grow much faster than anyone would have believed possible. Greenspan gave the credit to the American people: "When confronted with the choice between rapid growth with its inevitable insecurities and a stable but stagnant economy, given time, Americans have chosen growth."

To: Wally Mastroly who wrote (11149)	1/14/2000 9:58:00 AM
From: Wally Mastroly	Read Replies (1) \| Respond to of 15132

As mar-kets-red-glare, bombs burst-ing in air..* More Greenspan Watch * Greenspan to testify on fiscal policy Jan. 25...(yawn...) WASHINGTON, Jan 14 (Reuters) - Federal Reserve Chairman Alan Greenspan will testify on fiscal policy before the Senate Budget Committee on Jan. 25, just a week before the U.S. central bank's keenly awaited policy meeting Feb. 1-2. A panel spokeswoman said Greenspan's topic would be ''Evolving fiscal challenges''. He is due to appear at 10 a.m. (1500 GMT). Late on Thursday, Greenspan indicated the Fed is ready to raise short-term interest rates at its February meeting to prevent the booming U.S. economy from overheating. Separately, the committee said U.S. Treasury Secretary Lawrence Summers would testify on Feb. 8 at 10 a.m. (1500 GMT) on the administration's budget for fiscal 2001, which starts in October. biz.yahoo.com - NAZ, DOW, S&P 500 - back to the races.... quote.yahoo.com