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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (6828)	11/2/1997 12:24:00 PM
From: tekgk	Read Replies (1) \| Respond to of 18056

While I agree with you that drawing parallels to 1929 without thought is dangerous, I believe that useful information and patterns can be found. I disagree that the Fed bungled in 1929 by not cutting interest rates and injecting liquidity into the market fast enough. They did both. Greenspan has commented positively on how this was done by Warburg on many occasions and has stated that he could not have done any better. T-bill rates were cut immediately by 2.5% as soon as the decline started. Over the next three years they were further slashed and eventually fell to just 0.25%. What more do you want? Negative interest rates? Massive liquidity was injected into the system through Fed purchases of the Treasury paper. All to no avail. The problem was that past sin's simply overwhelmed that Fed's ability correct. I am not contending that the same thing will happen now, only that it happened then and that is possible now (although unlikely). Al Greenspan himself has warned about the possibility of systemic failure on many occasions.

To: Zeev Hed who wrote (6828)	11/2/1997 12:54:00 PM
From: Mike M2	Read Replies (1) \| Respond to of 18056

Zeev, I disagree with your comments on the '29 crash. I have heard the argument before that the Fed was too tight after the crash but the real problem was money was too loose for too long this is what created the stk mkt bubble prior to the crash. At the risk of sounding like a wacko, I believe the odds of a global depression have never been greater.Contrary to what Wall St would like us to believe the US will not be immune to the problems in SE Asia. I will expand of this note later tonight. Mike

To: Zeev Hed who wrote (6828)	11/2/1997 12:59:00 PM
From: Joseph G.	Read Replies (2) \| Respond to of 18056

Zeev, << In 1929, the floor dropped amongst other things because the Fed's (both the bank and the spenders) continued with restrained fiscal policy during the first few months.>> This is not true. Both NY Fed and commercial banks made funds readily available prior to Oct 29, actually, starting Oct 23, 1929. It is well documented. The easy money policy was largely recinded by the end of Nov, when a relief rally was well underway. Call money rates were maintained at 5% throughout the crash. But people just did not borrow much. You can lead the horse to water, but you can't make him drink. <<In 1929, the monetary autorities did not make any attempts to increase liquidity long before the damage on the paper assets market spread to all other assets categories and as a result precipitated contraction in demand.>> I assume here you stared to talk about 1930 and later, to 1933. This is not true either. Discount rate was lowered in steps to 0.5%, but money supply contracted anyway. This was the reason FDR announced "bank holyday" (closed banks) and dropped the $ gold standard, odered surrender of gold by private owners shortly after his instalement as President. Not that it helped much. If one is to learn from history, one has first to learn what was the history. Joe

To: Zeev Hed who wrote (6828)	11/2/1997 1:48:00 PM
From: Cynic 2005	Read Replies (1) \| Respond to of 18056

Zeev, in 1929 the Feds were wary of the stock market bubble and the New York feds even suggested that they rise interest rates to cool the stock market. As usual, the pols opposed to that since they can't think farther than their next election. I don't think that the liquidity was a problem at the time of the crash. It was just that there are upper limits to what one can borrow. Sure, the margin was 10% in 29 and 50% now. But back then there were not so many innovative ways to borrow even for that 10% payment. Today, you can bring that 50% form your credit card, 2nd home mortgage etc and borrow another 50% to buy the shares of your favorite companies. I am not sure about the breadth of such problem but it is much deeper than the one in 1929 if the initial margin requirement is met with borrowed money. JMO. -Mohan

To: Zeev Hed who wrote (6828)	11/2/1997 4:06:00 PM
From: Tommaso	Read Replies (2) \| Respond to of 18056

The first response of the fed in the 1929 crash was to supply funds to the money markets. It was later that a sentiment spread in the fed, in the treasury, and in the executive branch that what was needed was to "wring out" excesses, and the money supply was allowed to contract disastrously. This could occur easily because the country remained on a gold standard. Scandinavian countries immediately went off the gold standard and suffered much less than Britain, France, and the U.S. In some ways the stock market is even more inflated than in 1929. I agree that Prechter is not to be believed, but a 50% decline from the top is altogether likely, and mass psychological depression over stocks could easily cut the market by 60% or more. I see the stock buy-backs at these high levels as a terrible idea--a distribution of capital by the big companies. The beneficiaries are short sellers or those cashing out at the top--not the long-term stockholders. The companies should be holding those assets for investment--or at least paying off any outstanding debt. Besides Prechter, who doesn't count, prominent bears include John Templeton, Warren Buffett, and Alan Greenspan. There are probably others, but bearishness is such an un-American occupation that it can be quite unpleasant unless you are a billionaire. Billionaires usually have friends. Not always. Who would have wanted to hang around with Howard Hughes in his last years?