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To: Lucretius who wrote (20329)	9/21/2000 11:59:09 AM
From: LLCF	Respond to of 436258

ROFL DAK

To: Lucretius who wrote (20329)	9/21/2000 12:10:40 PM
From: LLCF	Respond to of 436258

"Consensus estimate for crude for '01 is $23.50 a barrel" Can I buy calls on that strike Abby???? HO ho ho The consensus view suggests that energy prices may rise somewhat further during this autumn and winter, but that the largest percentage increases have already occurred. Scenarios can be developed in which prices briefly spike notably above current levels, but they are assigned fairly low probabilities. Our energy team in equities research expects crude oil to average $29.55 per barrel in 2000 and $23.50 in 2001. 4. THE FEDERAL RESERVE: INVESTORS ARE CONFUSED EVEN IF POLICYMAKERS ARE NOT The recent rise in energy prices has confused investors with regard to the likely response from policymakers at the Federal Reserve. Few expect a repeat of the 1970s, when many central banks provided ample liquidity to offset the growth-dampening consequences of higher energy prices. These policies in the industrial economies made businesses and households less resistant to inflation, and facilitated the rise in inflation expectations that proved so damaging in subsequent years. Some investors now worry that the Fed and other central banks will take no action, for fear of accommodating the energy price increases. Still others worry that central bankers might tighten policy in response to energy- induced inflation. The fear is that the industrial economies may falter, especially since aggregate demand began to slow in several economies even prior to the recent gains in energy prices. We believe that the Federal Reserve, as always, will keep a watchful eye on business conditions and will adjust policy accordingly. The more difficult task may fall on the European Central Bank. The ECB is already pondering the correct policy action given the disparate economic performance among member nations at this time. The impact of energy prices is compounded by the Euro's weakness relative to the dollar, as energy is typically denominated in dollars. Hence, energy prices have risen more in Europe than in the United States. Further, the European economy is more energy intensive than the more service-oriented U.S. economy. Our Economics group has estimated that energy represents far less than 10% of total business costs in the United States, even at current prices. 5. FISCAL POLICY FOLLIES? Among the remarkable achievements of the U.S. economy during the past decade has been the swing from the largest federal budget deficits in history, to the largest surplus. One appropriate concern is whether the new president will bring a decided change from fiscal policy restraint toward fiscal policy ease. Both major candidates have proposed using the projected surplus in some substantive manner. To date, much of the discussion has been conducted, or received, in media-oriented sound bites. Investors are most likely to be calmed by proposals that (1) are based on credible surplus projections; (2) reflect long-term government liabilities, including government workers' pensions, Social Security and Medicare; and (3) take meaningful steps to reduce the large federal debt, much of it incurred during 1980-1992. Given the poor track record of most budget forecasts, it might be best to discuss plans for the surplus in time periods shorter than the currently popular ten years. 6. MUTUAL FUNDS AND THE OCTOBER YEAREND Many U.S.-based mutual funds operate with a tax year ending October 31. As such, there is often pronounced selling pressure between mid-September and the third week of October as mutual fund managers often try to balance realized capital gains and losses. In many recent years, portfolio managers had notable capital gains (some of them realized) and would often trim their losing positions during early autumn. This may be a more confusing year, with portfolio managers facing a variety of circumstances. For example, it is possible that managers with significant technology exposure realized portfolio losses during the spring. If so, these managers may wish to sell some of their profitable positions, and realize those gains to offset the earlier losses. In any event, the September-October time frame tends to be a sloppy one in U.S. equity markets. In several recent years, this has been followed by noteworthy price gains as investors return to the markets in November and December. In addition to increased cash positions in some portfolios, there can be healthy new flows from individuals receiving yearend incentive compensation. The so-called January rally has been a Thanksgiving event in the United States for most of the past decade. First Call Corporation, a Thomson Financial company. All rights reserved. 888.558.2500 DAK