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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: quasar_1 who wrote (125)	10/24/2000 2:34:35 AM
From: Erik T	Read Replies (3) \| Respond to of 74559

Thanks for the interesting commentary here. Taking it back to the original post, I think there is mounting evidence for: I believe that there are danger signs in the US economy and financial markets that are signalling a serious financial meltdown to take place next year. This would mean a US recession and another sharp stock market downturn. I have only read about the last 40 posts, so I don't know the extent of issues already discussed, but here is some information I find particularly interesting, and, like much of the discussion I have seen here, is unknown to most all individual investors. Here is a very interesting paper by two folks from the New York Federal Reserve Bank, written in 1996. ny.frb.org It looks at the probability of a recession four quarters ahead based on the interest rate spread between the 3-month T-bill and the 10-year treasury note, averaged over a quarter. According to Market Vector for Nov 00 that spread is negative .18%. As we all probably know the yield curve inverted quite some time ago; April I think. Based on the chart on page 2 of this paper, if the quarter's average turned out to be negative .18% then there is about a 30% chance of a recession four quarters ahead. They mention in the paper that recessions are relatively unlikely events, so the prediction of even a 25% chance is a relatively strong signal. I think there has become a great complacency into believing in the omniscience of the Fed, and that a recession is virtually impossible. From an investment standpoint I am trying to figure out whether Greenspan is more concerned about inflation or recession. If growth slows or reverses, will he cut rates despite evidence of growing inflation pressures? Erik