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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: hueyone who wrote (19066)	2/11/2001 10:12:26 PM
From: Craig Freeman	Read Replies (1) \| Respond to of 60323

Hueyone, re: "the notion that the government or federal reserve can permanently engineer the death of business cycles is a fallacious one." I disagree. If the Fed chose to raise the discount rate to 15% at their next meeting, that would most certainly bring an end to any semblence of a "business cycle" and the markets would plummet during the chaos that followed. Never underestimate the power of the Fed. Craig

To: hueyone who wrote (19066)	2/12/2001 10:22:01 AM
From: Art Bechhoefer	Read Replies (3) \| Respond to of 60323

<<Regardless, the notion that the government or federal reserve can permanently engineer the death of business cycles is a fallacious one.>> Huey, the question is not whether a government agency or central bank can affect the business cycle, but whether policies and/or statements of government agencies can have an impact on investment decisions. The catastrophe of October, 1987 was precipitated by the Federal Reserve raising interest rates at a point where the dollar was already overvalued in relation to the yen and other currencies. The result was immediate and breathtaking. Investors immediately switched out of stocks into bonds, and the stock markets, which were not yet limited by trading curbs and circuit breakers, plummeted. This is a clear instance of a government agency (the central bank) making a humongous mistake. In the current situation, the Federal Reserve made another major error in its failure to account for the impact of higher gasoline, fuel oil, natural gas, and electricity prices on consumer spending, going back to late 1999 and 2000. All the Fed saw was "potential" inflations from a low inflation rate. In response, the Fed kept raising interest rates at a time when higher energy prices were already exerting a severe and immediate dampening effect on consumer spending. When, near the end of November, 2000, it became clear that consumer demand was dropping, particularly for computers and certain types of semiconductors, Bush and his advisors made a conscious decision to use the weakening economy as leverage for a large tax cut. We know this because of the published statements of Bush and his advisors, who took special pleasure in blaming the oncoming recession on Clinton. The objective was two-fold: Make Clinton look bad and at the same time make the incoming administration look good by demonstrating its ability to do something positive immediately. To ensure that the economic situation would be seen as deteriorating, nothing could be a better example than a falling stock market. After all, with unemployment not even as high as 4.5 percent, and with retail sales still reasonably strong, one could not make a convincing argument that the economy was in recession. Better to call it a "slump," whatever that means. Meanwhile, what could be easier than contact one's cronies in the investment community, asking them to do whatever they could to withhold major investments in stocks, particularly technology issues? If the result would be a tax cut, with the greatest amounts of money going to those who are the chief customers of investment firms, wasn't that incentive enough to cooperate? As to the data supporting this theory, as I noted in a previous response, all you have to do is look at the changes in institutional holdings of major stocks, such as Intel, AMD, Dell, Lucent, Corning, Cisco, etc. The changes show better than any other documentation that the severe drop in the price of these stocks was not tied to a similar drop in earnings. Cisco is the most recent example. It missed the earlier expectations of certain analysts by a penny (two percent) in quarterly earnings but still could show a growth rate of 48 percent. If the Bush administration had wanted to bolster consumer and investor sentiment, it would not have made pessimistic statements about the economy (going so far as to suggest a recession when the data don't corroborate it). It would have done just the opposite. But that was not its agenda. The result is not just the drop in stock prices of a handful of key technology stocks but an extension of this overall pessimism to stocks such as SanDisk, and the further result that these pessimistic statements can and do easily become a self-fulfilling prophecy. I believe in calling a spade a spade, and in putting the blame fully on those responsible. Art Art