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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Shaw who wrote (53374)	6/8/2000 11:57:00 AM
From: HairBall	Respond to of 99985

Shaw: I have no opinion formed on the rate raise in Europe. But I do believe that much of what we have seen in rate hikes by Greenspan have been to bolster the dollar, not just curb the economy or equity wealth effect. I do not think we have seen the last hike, yet! Regards, LG

To: Shaw who wrote (53374)	6/8/2000 12:13:00 PM
From: UnBelievable	Respond to of 99985

It Creates A Dilemma For US US Economy is slowing (there once was a time when this was not good for stocks). All things being equal the FOMC might have done .25 rather than .50 in June. (I don't think a pass unless the market is tanking is possible). As many on this thread have pointed out, non-inflationary growth in the US has been possible because of the strength of the dollar and the low cost of imports. The Trade deficit is evidence of the extent to which we have relied upon foreign imports. The dollar was already in decline. Without a further increase in US rates the decline of the dollar accelerates. This is very bad for the US because imported goods and services become more expensive, and foreign capital which had been in US Equity markets will tend to be repatriated. To the extent that the FOMC raises rates to prevent further erosion of the dollar it will both increase the cost of capital for companies in the debt market, and decrease domestic demand. Both of these will be a drag on corporate earnings. Lower corporate earnings and a reduction of the investment pool due to withdrawal of foreign investments means that the opportunity for cheap capital from the equity market is also limited. The movement off of 0% interest by the BOJ will have the same implications for the US. At this time I would not be surprised if all of this was happening with the tacit approval of the FOMC, as part of the effort to cool a way overheated economy. (BTW Did anyone notice that consumer debt expanded fairly rapidly again last month. While down from the prior month ((especially after the prior month was adjusted up)) it was still was a big increase. If at the end of a 8 years of unprecedented growth, and in the context of anticipated interest rate increases, consumer debt still increases, when does it decrease?) I'm sure that the FOMC understands the implications and risks of these changes. I don't think there is much awareness of the extent to which the FOMC has recognized the danger of an imminent meltdown in the US economy. It doesn't help anything for them to talk about it.