To: Poet who wrote (10560 ) 4/22/2001 1:01:06 PM From: hobo Read Replies (1) | Respond to Good morning Po,stockcharts.com [h,a]declyymy[pb50!b200][vc60][iUb14!Ll14!La12,26,9]mach.quote.com mach.quote.com Message 15701205 Now one could argue that the damage is mostly in high tech due to the NASDAQ smash down. And true the Internet IPO sector has been decimated. But at the same time unemployment has not increased dramatically and even in the high tech area technical people that have been displaced are easily reabsorbed into new jobs. The tough sell in the employment area in Silicon Valley are the low skilled technical people and sales and marketing types. Mean while the other shoe of the Dow refuses to drop and this week climbed rapidly back to almost 11,000 – less than 10% off its all time highs. In 1929 the decline as with 1987 was systemic – all stocks declined in value rapidly. Message 15700672 But now the music has stopped. And by finally recognizing the mounting perils of an investment-led slowdown, the Fed is owning up to a very different reality than it first posed a few months ago. The financial markets see it differently. An aggressive Fed is thought to be just what a battered equity market needs. The cry of "Don’t fight the Fed" finally makes great sense. That raises one of the most intriguing possibilities of all: With the layoff cycle now beginning to take a worrisome upturn, the American consumer is about to get hit by the most powerful cyclical force of all US -- the income effect stemming from headcount reductions and wage compression. To the extent that the US economy is now facing the twin perils of negative income and wealth effects, the Fed may be more than willing to opt for what I have called the "bubble fix" -- in effect, attempting to neutralize the negative wealth effect by reflating the stock market (see my 5 February dispatch, "The Bubble Fix"). Flouting the moral hazard critique is a small price to pay if the US can avoid the perils of a post-bubble climate. The central bank can afford to ease with impunity. The big question is whether the Fed will be able to get lasting traction with its actions. The history of post-bubble economies is not encouraging in this regard. A U-shaped upturn would be considered a blessed event. The norm, unfortunately, is far more L-shaped. The V that investors still seem to be banking on in 2002 -- with IBES earnings expectations holding at +16% --seems virtually out of the question. That suggests there is a good deal more to come on the monetary easing front in the months ahead. In my stylized view of the world -- again, far more extreme than that of our US team -- the federal funds rate is headed to 3%, or lower, in the months ahead. And the sooner, the better. I applaud the Fed’s shift, but worry increasingly that it may be too late. But at least Greenspan & Co. are now taking a stand. Aggressive rate cuts may be the Fed’s last hope to avoid the abyss.
