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To: Zeev Hed who wrote (44835)	6/17/2000 5:56:00 PM
From: jim kelley	Read Replies (1) \| Respond to of 93625

Interesting analysis but FWIW I believe you are wrong. It looks like your bear market scenario hinges on Political: "a. Election year, the current government has a lot of freedom of injecting liquidity into the market so as to create the "good feelings" required for them to stay in power ("it is the economy, stupid" still works). That will be in effect over the next few months once the campaign resumes in earnest. That effect will be absent after the election." I think you are correct in this assumption. However, remember that the FEDERAL RESERVE does not have to inject excess liquidity into the system because of Gore or Clinton. However, we can check on this in the economic reports. "b. Recognition by any new administration (R or D), that market excesses must be wrung out of the system, and it is best to take the bad tasting medicine early in the four years cycle." There appear to be some excesses in the market but a lot of the companies with excess valuation have already been taken outside and shot. As you note a lot of the high flying dot.com stocks have been shot and some of those will be buried. You refer to high PE stocks as a market excess. The demise of a lot of high PE stocks is likely to have a salutary effect on the average PE. So it is not clear to me that your market excess theory is correct. Sure we have high PE's. If the interest rates stay up these will be brought down by the normal forces of capital return competition. Indeed, the FED which has the most control over the economy has stated its intent to perpetuate the the economic expansion albeit at a slower rate. So the FED has not indicated any desire to kill the economy. Barring a change in FED intent I do not see the government pulling the plug on the economy. "Economic: (just two, there are many more, including housing slow down, car market saturation etc.)" Housing is slowing down because of the increase in interest rates and the recent (short term) bear market events. It is not clear whether the car market is saturated or whether the changing interest and market euphoria has slowed sales. "a. This year's earnings will still look pretty good as compared to last year due to the extremely high growth rate of the economy in the past few quarters. Next year's comparison to this year will be difficult, as the growth rate slow down induced by the Fed, finally takes its toll on earnings." This is probably true to some extent. It will be even more true if your bear market scenario underway. But it is still tautological reasoning at this point in time. Liquidity: "This current excess liquidity coupled with excess liquidity discussed above, will fuel the "last gasp" in this Bull for a good two to three quarters, and after that, will dissipate." If the bear market scenario kicks in then there will be smaller government surpluses if any at all with which to pay back the treasury. These seems like a huge incentive for the FED and the Treasury to keep the economic expansion going at a slower rate. In summary: IMO the FED is really holding the keys to the economic expansion. They have demonstrated that they can speed it up and slow it down by means of monetary policy. It seems probable that the FED will exert its efforts to slow growth to a "sustainable" growth rate and that there will not be a great bear market lasting far into the future as you propose. It serves no discernable purpose for the FED to kill the market and lose the benefits of continuous expansion which include full employment, treasury debt pay down, and political stability. Could it happen? Yes. Is it likely to happen? IMO no. It is more likely that we will see a number of market corrections next year than a true bear market.