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To: James Strauss who wrote (55183)	6/24/2000 6:46:00 PM
From: Casaubon	Read Replies (1) \| Respond to of 99985

what if they raise 1/4%? Do we then get the "they'll never raise again after this one, rally"?

To: James Strauss who wrote (55183)	6/24/2000 8:57:00 PM
From: Hank Stamper	Read Replies (1) \| Respond to of 99985

"Interest rates are the prime market movers along with earnings.... Historically, the end of a rate hike cycle as been good for the equity markets." Yeah but. What about them earnings? Wouldn't it be reasonable to expect Fed tightening would impact negatively on corporate profits? We have only just begun to see the impact and it should take months (a year or more) to shake out.... Ciao, David Todtman

To: James Strauss who wrote (55183)	6/25/2000 1:24:00 AM
From: Tunica Albuginea	Read Replies (3) \| Respond to of 99985

J.Strauss:Jun 25 ,Bloomberg: `No Inflation' Argument Is Wearing Thin at Seams: Caroline Baum Bloomberg Sun, 25 Jun 2000, 1:12am EDT `No Inflation' Argument Is Wearing Thin at Seams By Caroline Baum quote.bloomberg.com New York, June 22 (Bloomberg) -- Yesterday a whiff of inflation wafted its way across the European continent and British Isles, hammering their fixed income markets. Revelations of Bank of England worries about the inflationary implications of the slumping pound and reports of a big jump in consumer prices from three German states sent 10-year European bond yields soaring some 8 to 10 basis points. U.S. Treasuries fell in sympathy. At least it was described as a sympathetic gesture, seeing as how we have no inflation in the United States. It is an article of faith that every price blip on the radar screen is the result of a one-time event, a bad seasonal adjustment factor or a quirky survey period. Too bad Europeans haven't caught on to the technique of ex- ing out everything that goes up. ``The argument that core inflation remains under control is wearing a bit thin as `one-time' oil price increases keep repeating themselves,'' says Bob Barbera, chief economist at Hoenig & Co. in Rye Brook, New York. Forget oil. Everything else is accelerating, too. Yet the perception persists that there is no inflation in the U.S. Indicator May 1999 November 1999 May 2000 CPI +1.5% +2.6% +3.1% CPI ex-F&E +2.0% +2.1% +2.4% CPI ex-shelter +1.7% +2.7% +3.2% Commodities +1.6% +2.5% +3.3% Cmdty ex-F +1.2% +3.0% +3.8% Non-dur ex-F +3.0% +6.0% +6.6% Services +2.4% +2.6% +3.0% Services ex-E +2.7% +2.6% +3.0% Serv ex-rent +1.9% +2.7% +3.2% Serv ex-OER +2.2% +2.7% +3.3% Medical Care +3.4% +3.5% +4.0% Serv ex-medical +2.4% +2.6% +3.0% The table above shows the year-over-year change in various CPI components as of May 1999, November 1999 and May 2000. You want services ex-energy? The Bureau of Labor Statistics has it. Commodities less food? Services ex-rent, ex-medical? Non- durables ex-food? They got 'em all. As the table demonstrates, even if you exclude all of the components that are rising faster than overall inflation -- medical care and energy, for example -- inflation is still accelerating. Hail to the Chief ``Core inflation for the first five months of the year is running at 2.7 percent compared with 1.9 percent last year, yet the market has not reacted as if there had been any change,'' says Henry Willmore, senior economist at Barclays Capital Group. ``The break-even rate on TIPS hasn't done much all year.'' The break-even rate is the difference between the yield on nominal and inflation-indexed bonds (TIPS stands for Treasury inflation-indexed securities). TIPS guarantee investors a real rate of return plus protection against inflation. Using the 4.25 percent TIPS of January 2010, the break-even rate went from 2.35 percent at the time it was auctioned in mid- January to 2.12 percent now. In the interim, the spread took a wild ride from a low of 1.95 percent on April 10 to a high of 2.55 percent on May 4. But net/net, there has been little change from the start of the year to mid-year -- and certainly not enough change to reflect the deterioration in the core CPI. One popular argument for the bond and stock markets' refusal to entertain the prospect of inflation is the confidence in Federal Reserve chief Alan Greenspan. Traders and investors trust Alan to take care of any and all inflation. Since that's the job with which he is entrusted, their confidence is well-placed, although it wasn't always so. The inflation of the 1970s has been traced to bad monetary policy, especially in the face of two oil shocks. Touch and Go Perhaps that's why Federal Reserve officials sound less confident that their work is done than financial market professionals. For example, the markets breathed a collective sigh of relief when the 0.7 percent increase in the March CPI was followed by an unchanged April reading, as if the news were expected to repeat itself from there on out. It's going to be hard to keep inflation from accelerating, Willmore says. ``It's already baked in the cake. Even if we print increases of 0.2 percent in the core, the year-over-year rate will rise because we are dropping off 0.1 increases'' from June and August last year. That's the good news, which would put the year-over-year increase in the core CPI at a still-respectable 2.5 percent at year-end, according to Willmore's calculations. Print a couple of 0.3 or 0.4 percent increases, which is entirely possible if rent of shelter and owners' equivalent rent ever catch up with reality, and the core CPI ends the year closer to 3 percent. Now 3 percent inflation 10 years into an expansion is nothing to be ashamed of. In fact, it's something of a victory. But the folks who deny inflation has accelerated are in denial. The Fed knows that once the process takes hold, it doesn't reverse in one month's, or even a few months', time. Policy-makers also know that the rate increases administered to date affect the economy with a lag. Just the way Greenspan used his intuition when he let the economy cruise full speed ahead, he is going to have to tap those talents again to decide when he's done throttling back. ===================================================== Message #55183 from James Strauss at Jun 24, 2000 6:35 PM ET Which Way Will It Go??? ************************** Interest rates are the prime market movers along with earnings... There is a good chance that the FED will be neutral on Tuesday... At the very worst we could see another 1/4 point rate hike... Then, that will be it for the next 6 months... Historically, the end of a rate hike cycle has been good for the equity markets... The chart of the NDX which has the largest of of the high tech stock companies has swung over to the oversold side... chart.bigcharts.com. Note the falling Stochastics and Williams %R... I'm looking for a dramatic upswing some time on Monday, but not later than Tuesday afternoon when the FED closes shop... All that negative talk by analysts about the indexes possibly revisiting the May/March lows is for the benefit of FED ears, to create an atmosphere of a cooling market... It's designed to counter the FED's Wealth Effect argument... So, don't be surprised if there is more turbulence on Monday and Tuesday... In the end, when the FED stops raising rates the market likes it... Focus on that, and you'll know what to do... Jim