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Strategies & Market Trends : Options -- Ignore unavailable to you. Want to Upgrade?

To: Poet who wrote (6863)	4/23/2000 9:33:00 PM
From: Poet	Respond to of 8096

More editorial comment from today's Option Investor newsletter: The most immediate challenge will be on Thursday. The Employment Cost Index and the GDP numbers will be announced. Two very big economic factors to watch. More importantly Greenspan will have a major speech on Thursday also. What is key here is Greenspeak. Since everyone expects a +.25% rate hike at the May meeting, if Greenspan intends to hike more aggressively, he will have to tell the market in advance that is his plan. The Fed never raises rates without telegraphing those increases well in advance so the market does not over react. Especially with the market so fragile at this point Greenspan will have to make his plans known to avoid disaster in an election year. Of course he will not say "I am going to raise rates +.50% at the May meeting." That would only accomplish the same disaster three weeks earlier. He will form his words as only Greenspan can, in as vague but precise a context, that it will take several days for you to decide what you heard. By the time all the analysts spread their version of the event, days have passed and the pain is not as noticeable. If the Fed raises rates +.50% and the market heads for 9000 again then they cannot raise rates again at the next meeting. If they over react and tighten too much then the economy can crash just as fast as the market. Since rate increases take 6-9 months to show up in the economy, the impact of the last six increases has yet to be felt. They do not want to be faced with having to cut rates by summer because they over reacted and now they have to fix it quick. I think Greenspan would have to believe he has lost control before raising more than +.25% and the market would react badly to an out of control Fed. In reality the Fed is our safety net and we know that they will keep the economic engine running at maximum safe speed much longer than if we were in control of the throttle. The greed factor in all of us would have us hitting the wall at full speed and the paramedics would be picking up pieces and trying to patch together the economy for years to come.