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Strategies & Market Trends : Classic TA Workplace -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (18223)	10/27/2001 9:18:01 PM
From: AugustWest	Read Replies (1) \| Respond to of 209892

LOL, is this the one you are referring to?~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Bob McTeer, a "new economy" idiot savant and Fed Official Admits "I Don't Understand What Happened" “The Federal Reserve's seven rate cuts this year also haven't done much to spark the economy -- or stocks. Low rates have yet to encourage borrowers, especially businesses, to spend. Instead, they're often refinancing, trading in high-interest loans for lower-interest debt. While that's great for their balance sheets, it's not doing much for profits -- or stocks.” today’s Wall Street Journal While looking through today morning papers on the Internet, two stories caught my eye. First is an interview by the head of the Dallas Federal Reserve Bank, Robert McTeer, and second is an associated press article that predicts big gains for the markets this week. Bob McTeer currently serves as a voting member of the Greenpsan’s Federal Reserve Board. In that role he has taken it upon himself to be the leading proponent of the new economy. In past speeches McTeer has claimed that thanks to a technology based “productivity miracle” we were entering a “new economy” in which the business cycle would be made obsolete. Earlier this year he argued that the US would escape a recession thanks to the computer. He theorized that thanks to computers business are more able to now keep track of their inventory and as a result can more quickly dispose of surplus goods.When it became clear that the economy was slowing down, McTeer claimed, earlier this Spring, that the economy had bottomed and would be booming by now. He said it would be the consumers responsibility to go out and spend to keep the economy afloat until the big recovery came. He closed one of his speeches by telling people in the audience to go use their credit cards and go out and "buy an SUV." When a skeptical reporter interviewed him and asked if the US economy did not have some of the imbalances that the Japanese economy had, McTeer responded by yelling, "we are not in a financial crisis. Use your cell phone and upgrade." These type of comments typify the quality of thought on the Federal Reserve Board. They know that the economy is in bad shape and what we are seeing is the unwinding of a speculative bubble, but they really have no quick solution to getting it back on track. Thus all they do is use knee-jerk interest rates and pleas that people get optimistic and take on more debt. McTeer's interview this weekend is noteworthy, because for the first time he admits to be confused with what is going on with the economy and no longer knows when it will bottom out. "Every time we have a new round of statistics, I expect that the next round is going to be much better. And we are accumulating reasons to expect that, but so far it hasn't happened. I must say that I have been a little bit surprised and obviously disappointed that we haven't made a sharp turn yet on the upside," he said. "This slowdown's been very unusual. The thing that's been saving us is the consumer," he continued, "they've been doing something that's probably irrational from the point of view of the individual consumer because they all need to be saving more: saving for retirement, saving for college and all of that. But we'd be in bad trouble if they started doing the rational thing all of a sudden. We're happy that they're spending. We wish that they didn't have to run up a lot of debt to do it." The interviewer then asked McTeer when he thought the economy would pick back up. He replied by saying, "I don't have a guess... I've been thinking it's right around the corner for a few months now. I've been humbled a little bit by it. This thing is lasting longer than it was supposed to." The interviewer went on to ask McTeer, "The technology sector ... there's been a huge shakeout there. Have investors moved from irrational exuberance to irrational fear?" McTeer answered by saying, "Well, they've moved from irrational exuberance to fear. I suppose that it's probably overdone. People that think it's going to be years and years before there's relief are really not being rational. But the problems are real. So there's a lot of rational fear involved in it as well. I don't understand what happened." Ok. So we have a Fed official who earlier this year claimed that the economy had bottomed and would boom by now. Now he comes out and says that he doesn't understand why the stock market made a bubble and popped and says he doesn't know when the economy will bottom. If these Federal Reserve officials can't understand why the economy is in the shape it is now then it is not logical to expect them to be able to quickly fix it. But this is exactly what people are expecting and that is why the market is in trouble. As people realize that the Fed is clueless they will dump stocks. 3/4's of the Federal Reserve Board, starting with Alan Greenspan himself, needs to be replaced. CNBC analysts said earlier this year that you "shouldn't short the Fed." Well you should when they don't know what they are doing. The other article that got my attention today was a prediction that the stock market would boom this week. A lot of fund managers were on vacation in August and now that they are coming back people expect them to instantly begin to buy stocks. Ned Reilly, chief investment strategist, State Street Global Advisors, Boston, was quoted as saying, "I'm hoping that we would start a rally after the Labor Day period because all of the players will be back. I think that they should be in the frame of mind that stocks are pretty cheap at the moment." He sees the fact that a lot of big cap techs, such as Compaq, Apple, Ford, Sun Micro, and Starbucks, just made 52 week lows as a positive fact because now stocks are cheap. But are they? Earnings have fallen faster than stock prices. Apple Computer now has a P/E of 122, Intel of 36, and Cisco has a negative P/E. Stocks are not cheap by any standard. The second argument that bulls are making now is that the market is oversold according to the Arms index. One commentator came on CNBC on Friday and said that the Arms index says that the market will begin to make a huge rally within the next 5 days. And Don Hays, who had been a former bear, has regularly appeared on television to use the arms index to predict the imminent appearance of a new bull market. Problem is that the Arms index has had an oversold reading for over a month and there are reasons to doubt its validity as detailed at a Street.Com article by Aaron Task. You cannot use a single technical indicator to predict what the stock market is going to do. You need to use several indicators and look at basic chart patterns. When you do that you get a much bigger picture. Sentiment indicators are still too bullish for us to be a near term market bottom. For that you need to see signs of widespread fear and capitulation in the market and they aren't there. And if you use basic chart patterns as your main trading signal like I do, then you don't take any new plan of action until the downtrend is broken. Otherwise you are just trying to guess the bottom and as so many learned from last year that is a fools game. Better to wait for things to turn around for real and then get back in. Message 16292326