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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (20869)	11/29/2000 8:55:19 PM
From: Dealer	Respond to of 65232

From Comstock Partners Premature To Discount Fed Easing Now Today’s weak market action was significant since investors took further signs of a slowing economy as a negative indicator rather than a positive omen that would lead to a Fed easing of monetary policy. Consumer confidence in November fell to 133.5, the lowest reading in 13 months. Moreover, while the October decline was taken in stride since the index had declined in every October for the past 11 years, it had, until now,rebounded in every November since 1992. In addition durable goods orders plunged by 5.5% in October, although ex aircraft and defense, the decline was only 0.5%. This follows yesterday’s release showing a drop in existing housing sales for October. The only sign of strength was in holiday retail sales, but the significance was undercut by unusually early price discounts and special promotions. If more economic weakness becomes evident soon, there is a strong possibility that the Fed would drop its tightening bias as a prelude to eventual ease. However, as today’s market action indicates, such a move by the Fed may not be greeted that warmly, as investors would then be reacting in a very negative way to a possible hard landing, declining earnings and potential credit problems. This would hardly be an unusual reaction as, historically, it has generally required two or more easing moves (sometimes many more) to get the economy and market moving upward following a severe bear market. As economists Ed Hyman and Nancy Lazar recently reminded us, the S&P 500 dived 27% AFTER the Fed started to ease in 1974, and by 16% AFTER the Fed started to ease in 1981. The point is that the economic and financial conditions that eventually convince the Fed to ease are usually so severe that investors are busy reducing equity holdings at the time of the first easing. Since we are not yet at that point, we think it would be a mistake to get overly optimistic now about a future Fed easing.

To: Jim Willie CB who wrote (20869)	11/29/2000 8:57:36 PM
From: Dealer	Respond to of 65232

From Comstock Partners Premature To Discount Fed Easing Now Today’s weak market action was significant since investors took further signs of a slowing economy as a negative indicator rather than a positive omen that would lead to a Fed easing of monetary policy. Consumer confidence in November fell to 133.5, the lowest reading in 13 months. Moreover, while the October decline was taken in stride since the index had declined in every October for the past 11 years, it had, until now,rebounded in every November since 1992. In addition durable goods orders plunged by 5.5% in October, although ex aircraft and defense, the decline was only 0.5%. This follows yesterday’s release showing a drop in existing housing sales for October. The only sign of strength was in holiday retail sales, but the significance was undercut by unusually early price discounts and special promotions. If more economic weakness becomes evident soon, there is a strong possibility that the Fed would drop its tightening bias as a prelude to eventual ease. However, as today’s market action indicates, such a move by the Fed may not be greeted that warmly, as investors would then be reacting in a very negative way to a possible hard landing, declining earnings and potential credit problems. This would hardly be an unusual reaction as, historically, it has generally required two or more easing moves (sometimes many more) to get the economy and market moving upward following a severe bear market. As economists Ed Hyman and Nancy Lazar recently reminded us, the S&P 500 dived 27% AFTER the Fed started to ease in 1974, and by 16% AFTER the Fed started to ease in 1981. The point is that the economic and financial conditions that eventually convince the Fed to ease are usually so severe that investors are busy reducing equity holdings at the time of the first easing. Since we are not yet at that point, we think it would be a mistake to get overly optimistic now about a future Fed easing.

To: Jim Willie CB who wrote (20869)	11/29/2000 9:11:22 PM
From: No Mo Mo	Read Replies (1) \| Respond to of 65232

Jim- "Keep an eye on the US dollar. If the US dollar starts to fall, Uncle Al and the Feds will have their hands tied and will be unable to sustain a longer term trend of lowering interest rates." This is pretty much the next stage of the scenario the bears over on the Clown Free Zone have been describing for months/years. First tech crashes, then the wider equity market, then the Dow, then the dollar. That's why they're so heavily into metals as a last refuge. They've been right (finally) since April. Given the possible severity of the pendulum from the March highs, do you think the dollar crash scenario is likely? If so, do you have any hedge plan? -Darin