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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Don Lloyd who wrote (75278)	2/5/2000 2:59:00 PM
From: Thomas M.	Respond to of 132070

Aeltus Weekly 10 State House Square, Hartford, Conn. 06103 January 31 ~ The current situation facing the Fed is reminiscent, in pertinent respects, of the one that confronted Paul Volcker when he took the reins with inflation raging and ''inflationary psychology'' under a full head of steam. Momentum then was a fact of life, as it is now, even if the sectors that were moving were somewhat different than those today. Then it was houses, commodities and collectibles that could only become dearer with time and therefore should be bought on any dip. Now it is dot.coms and e-anything, software, bandwidth and cyber turf that will rise inexorably but for the accidental bump that creates opportunity. The mentality in the late 1970s and early 1980s was that there was no force, nothing really likely, to get in the way of the irresistible force then in place. The Volcker Fed, as it turned out, proved to be an immovable object and the immovable object prevailed. That single-sentence history, however, hardly does justice to the tale. Prior to the Volcker years, yield-curve inversions had been painful but mercifully brief market responses to effective Fed restraint. Their effectiveness as economic brakes, and their brevity, made them excellent buy signals. But when Volcker jammed on the brakes against the rolling momentum of the 1970s' inflationary psychology, the collision of irresistible force with immovable object produced a titanic standoff that lasted for fully three years before inertia was deflected and the trend was broken. Three full years of the incredible financial pain implicit in an inverted curve! There is nothing like that sort of pain foreseen by today's markets or today's market seers, any more than there was back then. What it took for Volcker to prevail, to be effective against the inflationary psychology of that time, was a much greater effort than anyone, presumably even Volcker himself, could have imagined. ''Dip buyers'' and momentum strategies are the contemporary expression of inflationary psychology-they will rush in whenever the Greenspan Fed knocks this market down, as fear about its next move has done lately. Dip buying and momentum-following plays have been and probably will continue to be an irresistible inertial force. They will, says Isaac Newton, remain in place unless acted upon by an outside force. We'll see. It's shaping up to be a wild ride this year. Check your seat belt. -JIM GRIFFIN