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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (26088)	4/13/2000 8:53:00 AM
From: j g cordes	Respond to of 68046

Why the Market Dropped: Late last year and early this year I offered that the Fed had been loose with money for an inordinate period of time for reasons including last year's money's crisis in Russia, Asia, Latin America and Y2K worries about bank runs.. Remember, they promised they would take money out of circulation after Y2K and they have been. The effect on the market is a direct one. Excess money in the financial system essentially raised all boats especially stocks. As this tidal flow of money has been reversed, all boats must fall or have one heck of a good reason to rise above the waterline. Most stocks obviously don't. Adding to the basic negative relationship of money supply/liquidity drains, the Fed has raised the basic cost of borrowing by raising rates. This has had the effect of narrowing potential profits and raising the cost of every business and consumer decision based on borrowing. As borrowing, in the long run, is a rational process of weighing risk versus return, this has cut back interest in the most irrational ventures and spending. It eventually puts caution into routine buying and selling. This sequencing of the value decision tree holds true for stocks. Its important to note the threshold of business and consumer activity that allows a lowering of government debt and general prosperity is a high one. While some Fed govenors may think inflation is a danger, the real danger is letting the economy slide into a cycle of cooling that gains its own momentum of unemployment, failed lending, and loss of productivity and invention. If that scenario happens the retirement expectations of a generation of stock market intensity will evaporate and the government will be faced with placating an angry population that feels its savings have been stolen and taxes will be raised to insure those promises no matter whose in office. The aging baby boomer generation is a potent voting block which will have its way. Jim