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To: MeDroogies who wrote (90419)	3/21/2001 1:17:56 PM
From: tonyt	Respond to of 97611

Top Of The News: Wall Street Whiners By Dan Ackman Forbes.com Wall Street's reaction to the Fed's rate cut yesterday reveals the investment community as petulant children who need a time-out. In early March, Federal Reserve Chairman Alan Greenspan telegraphed an interest rate cut at the Fed's Open Market Committee meeting. Yesterday he delivered on his promise, cutting the benchmark federal funds rate by half a percentage point to 5%. For Wall Street, half a point was not enough. The Dow Jones industrial average fell 238 points to close at 9721, its lowest level in two years. The Nasdaq Composite index fell 94 points to 1857, its lowest in two and a half years. Losses were across the board: Cisco Systems (NasdaqNM:CSCO - news) fell $1.75 to $19.06; Oracle (NasdaqNM:ORCL - news) dropped $1.06 to $14.38; Lucent Technologies (NYSE:LU - news) fell 77 cents to $11.20; General Electric (NYSE:GE - news) dropped $1.05 to $40.05; AOL Time Warner (NYSE:AOL - news) declined $1.05 to $40.05; and Microsoft (NasdaqNM:MSFT - news) declined $1.63 to $52.69. Most economists advising the traders expected exactly the rate cut they got. But some came to believe that a half-point would not be enough to rally the markets; they wanted more. When they didn't get more, they felt slighted and started selling shares. "Even though the Fed did exactly what was expected, at this point [it is] falling hopelessly behind investor expectations," says Vince Boberski, senior economist for Dain Rauscher. Wall Street's reaction was predictable, but Greenspan, matador of the money supply, was in a tough spot. If he offered three-quarters of a point, Wall Street would have thought he was panicking and would have panicked in turn. Unruly children are, in the long run, better off when they are given strict, well-defined limits. The Fed, like the rest of us, can't help but notice the reaction on Wall Street, try as it might to look away and concentrate on the real economy. But its policy is based on an effort to "bail out the manufacturing sector," which has suffered mightily, Boberski says. If real weaknesses continue, the Fed indicated it might cut rates again soon. "The risks are weighted mainly toward conditions that may generate economic weakness in the foreseeable future," said the Fed in a statement accompanying its action. The Fed added: "Persistent pressures on profit margins are restraining investment spending and, through declines in equity wealth, consumption. The associated backup in inventories has induced a rapid response in manufacturing output and, with spending having firmed a bit since last year, inventory adjustment appears to be well underway." A "backup in inventories" has caused a reduction in output, but nothing close to a recession. The Fed's statement indicates its view that the worst may be past. But the future is hard to predict and the Fed hedged its bets: "The possibility that this excess could continue for some time and the potential for weakness in global economic conditions suggest substantial risks that demand and production could remain soft," the Fed said. "In these circumstances, when the economic situation could be evolving rapidly, the Federal Reserve will need to monitor developments closely." Only the "equity wealth" in the Fed's equation relates to Wall Street directly. But while a cut in interest rates may take six months to have an effect on the economy, the reaction from share traders is immediate. Wall Street traders are like roosters taking credit for the dawn. But just as Wall Street did not cause the recent fat years--though it did benefit from them--it cannot cause a recession on its own. Its main effect is through its influence on consumer confidence, which Greenspan does care about. His efforts to instill confidence are hindered by the fact that much of the general public is now the investing public, and he is getting what Boberski calls "bad press on Wall Street." Wall Street's reaction--and the resulting publicity--raises the question of why the Fed delivers its message at 2:15 P.M. EST. If it waited until after trading, it would give Wall Street the time-out it needs and reduce the odds of a spanking. Greenspan, at one time the market's mensch, is still doing his thing, cutting interest rates and issuing circumlocutory statements. He is out there selling his wares, still smiling. But Wall Streeters are treating him like Willie Loman: They have stopped smiling back. For Willie, that was an earthquake. For the rest of us, the result need not be so dire.