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Strategies & Market Trends : Guidance and Visibility -- Ignore unavailable to you. Want to Upgrade?

To: 2MAR$ who wrote (845)	6/22/2001 4:13:07 PM
From: DebtBomb	Read Replies (2) \| Respond to of 208838

Lot's more warnings coming over the next two weeks IMO, AH's could continue to be good.

To: 2MAR$ who wrote (845)	6/22/2001 4:25:36 PM
From: 2MAR$	Read Replies (1) \| Respond to of 208838

FED WATCH:May Offer Something New ----> A Surprise By Michael S. Derby Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Finally, some drama. The Federal Open Market Committee meeting is one of the first interest rate setting sessions in some time where everyone knows there's going to be a rate cut, but they can't decide how big it's going to be. This uncertainty is showing up all over, be it in market's pricing levels or in surveys of economists and money managers. All agree that it is at minimum a slam dunk that the Fed will cut the overnight target rate to 3.75% from 4% Wednesday. But there's a significant camp, including economists at some of the biggest investment banks, that say the central bank will continue to cut rates as it has in each of its moves this year - by half of a percentage point. The fed funds futures contract, which has historically been a very reliable indicator of Fed meeting outcomes this close to the actually gathering, shows the ambiguity. Late Friday, the July contract fully priced for the quarter percentage point move, but was dead even on the bigger move. What's notable is that uncertainty has been an increasingly rare commodity over the last couple of years. Expectations and the pricing of the market have been very closely aligned with what in the end results from the Fed meetings. "To some extent, there is the element of surprise" surrounding the meeting that hasn't been there in a while, said Joe Abate, economist at Lehman Brothers in New York. While Lehman is expecting a 3.5% funds rate, he said economic conditions are such that proponents of either move can make a compelling case to justify their views. Of course, the Fed has retained the ability to surprise markets. But that's largely come in the two occasions this year in which it's cut rates outside of their normal meeting schedule. Dealers Versus Buyers The majority of primary dealers continue to expect the Fed to opt for the more modest cut of 25 basis points at the FOMC meeting. But a number have moved to call for a 3.5% funds rate and, Friday, Goldman Sachs & Co. joined that group. "We think it's a pretty solid case" for 50 basis points based on the poor performance of recent economic data, said John Youngdahl, an economist at Goldman Sachs in New York. "It's more a sense that the risks of going too slow (in cutting rates) are greater than going too fast. The economy is continuing to deteriorate, and the risks are to the downside," he said. For the money manager camp, the lack of certainty is most notable. Two wide-ranging surveys of investor sentiment are showing a nearly even split on the FOMC outcome. A Ried, Thunberg & Co. poll Friday of 86 fixed-income fund managers found 58% betting on a move to 3.75%, while 42% said they saw a 3.5% funds rate. Compared to a week ago, supporters for the more modest easing have fallen from 76%. Princeton, N.J.-based Stone & McCarthy Research Associates have found similar results in their survey of fund managers. Their latest pool saw 51% choose the smaller move while 41% think 50 basis points is more likely. "There's a clear divergence of opinion" in the investment community, said Ward McCarthy, the firm's managing director. "It's not an even split" but sentiment has been shifting to the more aggressive outlook. Talking Points One of the problems for Fed watchers and the markets in the run up to Wednesday has been the tone of central bank officials' public comments. They, including Chairman Alan Greenspan, have signaled a continued willingness to cut interest rates. But they've also broached the possibility they may have done all they can for the economy with their easings, and that the current period may simply be a time of waiting for that stimulus to take hold. Some have also highlighted the risks, namely on the inflation outlook, of cutting rates more. Amid the talk, however, government and private sources have released more data showing an economy that in many ways is suffering even more than it had been. Also, corporate earnings have continued to deteriorate, and are now at levels that are affecting tax receipts, thus helping to drive a big increase in the government's need to borrow money through the rest of this year. "The numbers are bad and they are not improving. In some areas you might have seen some stabilization, but there's been no dramatic improvement," said Robert Tipp, chief investment strategist at Prudential Investment Management in Newark, N.J. That's helped move the sentiment for many to the bigger rate cuts, he explained. The upshot of the FOMC uncertainty is that it could be a wild ride for markets. Participants say that bonds are likely to do well in either case, although equities are very likely to do poorly if the Fed only cuts rates by 25 basis points. Either rate cut should be good for bonds, "as long it doesn't create too much exuberance in the stock market" over the longer term, said Michael Strauss, market analyst with money managers Commonfund in Wilton, Conn. -Michael S. Derby, Dow Jones Newswires; 201-938-4192; michael.derby@dowjones.com (END) DOW JONES NEWS 06-22-01 04:20 PM * end of story *