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To: yard_man who wrote (260754)	9/17/2003 12:06:09 PM
From: ild	Read Replies (1) \| Respond to of 436258

Comstock Partners, Inc. Is Monetary Policy Working? September 16, 2003 The Fed held the rates unchanged today which caused the stock market to rally sharply after the announcement. In a statement following the regular policy meeting, the Federal Open Market Committee noted recent signs of improvement in the U.S. Economy, but warned again that the major risk to the economy is the “minor” possibility of further “unwelcome” disinflation. The statement said, “The evidence accumulated over the inter-meeting period confirms that spending is firming, although the labor market has been weakening” The statement was almost identical to the statement from the August meeting. The main difference was that the Fed said the labor market was “mixed” at the last meeting and now the labor market is “worsening”. The second change was a very minor wording in the balance of risks assessment for inflation. The new wording essentially means a slightly greater commitment to the notion that the inflation risk could be too low. And the statement also retained the sentence that said it believes “policy accommodation can be maintained for a considerable period”. The Fed wanted to drive home the message that rates will be kept low for a long period of time in order to close an output gap (economic output vs. economic output potential) that is putting downward pressure on the inflation rate. We continue to be surprised that the Fed actually thinks that the downward pressure on the inflation rate is being caused by the output gap. We believe the downward pressure on inflation is nothing more than the excess capacity and debt built up in the mania of the late 1990s. In fact, we are even more surprised that the Fed’s statements could have a market moving influence. We have no confidence whatsoever that monetary policy will have any effect on the economy under the present post bubble environment and are amazed that the market is placing so much emphasis on a policy that hasn’t worked for the past two and one-half years. Don’t most investors know that the Fed lowered rates 11 times in the year 2001 without having much influence on the economy or stock market? This should suggest that monetary ease is not the cure. During the two and a half years since the beginning of 2001 total indebtedness grew in total by about $5.6 trillion compared to real GDP growth of $417 billion. This equates to $13.50 of debt for each dollar of real GDP and if you use just the non-financial debt of $3.3 trillion you get $7 of debt for each dollar of GDP. These numbers compare to $1.5 of additional debt for each dollar of additional GDP in the 1960s and 1970s. We continue to believe that despite these Fed actions and announcements, both the economy and the stock market recoveries will not be sustained. Send to a friend Send us feedback Add to Favorites © 2000 Gabelli & Company, Inc. All rights reservered. Member, NASD and SIPC. Shares of the Comstock Funds are only offered for sale in the United States. The materials in this website are not an offer to sell or solicitation of an offer to buy any security , nor shall any such security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. Please call 1-800-GABELLI (1-800-422-3554) or your Advisor for a free prospectus for the Comstock Funds, which contains more complete information on the Funds, including management fees, charges and expenses. Please read it carefully before investing or sending money. comstockfunds.com