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Non-Tech : The Critical Investing Workshop -- Ignore unavailable to you. Want to Upgrade?

To: limtex who wrote (18226)	5/11/2000 8:46:00 AM
From: SGJ	Read Replies (3) \| Respond to of 35685

Good morning all, I love this board and have been lurking for quite some time. I have heard all kinds of comments on many boards about the evil Fed and thought I would just state what i know to maybe try to give a reasonable explanation to their current situation. The FED is not anti-nasdaq or economy. The economy cannot grow without a break. To let it continue unabated just makes the "recession" when it does hit more devastating. Similar to the market. The markets are a microcosm of the larger economy. Supply and demand. So the Fed uses one of the few tools it has to manipulate the economy, raising interest rates. This takes out fringe demand for big ticket items and this trickles down to reduce demand for smaller items and slows us down, hopefully a soft landing. They can also take money out of the economy by buying back bonds and they are doing that too. So we are seeing two of their four techniques at play. The others are the act of surprise (No rate hike on May 16 would be an example of this technique) and manipulating the Bank reserve requirements. Thats pretty much it. They are now trying to slow down demand to allow the economy to catch its breath. This is not inherently evil but it does impact stock prices. Now about the FED and the markets. All of this manipulation has to be done with a keen eye on the markets, despite what Greenie and the Fed prezs say, because the markets are inextricably tied to the Banks. And the health of its member Banks are the FEDs main charge. Most banks have lines of credit out to market makers secured by stocks. Not just the money center banks either, as they sell participations in these lines down to small regional institutions. If the market suffers severe selling pressure the MM must buy up the supply. Market makers describes exactly what they do. Make markets in good and bad times. They must buy. So if they use bank lines to buy and the prices continue to fall the banks collateral value drops and the lines get maxed out...no liquidity. This can set off a liquidity crisis which also threatens the banking system. MM go bust, banks go bust..This is so horrendous a situation that I will leave it to your imagination as to what would happen to your stocks. But it wont happen because the FED will step in with the SEC and Exchanges to put "safetys" on. One of these is for the FED guarantee the MM lines with the banks. A FED guarantee helps bankers sleep at night. I have personally witnessed such an action in 1987. MM then continue to buy and the banks keep the lines of credit open and the market is saved for another day. I just wanted to post this so you would see this in a light different from good/evil...its just business guys.