Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: tekgk who wrote (6830)	11/2/1997 12:56:00 PM
From: Zeev Hed	Read Replies (1) \| Respond to of 18056

tekgk: I think that the interest rates were already too low at the start, and Warburg, di not react as fast. However, another major difference in the two situations (relative to the market) was the very high margin rates used (only 10% down), which caused the banks financing the bubble to fail. This created a domino effect of failures, and these failures induced a drastic demand shrinkage in the economy. Here we have only 50% margins, and the majority of the "players", the funds, are not using margin at all (except of limited lines of credit to meet sudden redemptions). Therefore asituation where afinancial accident spread like a plague throughout the economy is less likely. I think that Greenspan is keeping current rates high in a paranoic fear that he may have to lkower then drastically in the event of a financial accident, and if the interest rates are too low, lowering them will be like pushing on a thread, ineffective (see the Japanese situation). I do see, however dangers to the market from the combination of restrictive fiscal and monetary policies simultaneously. Everytime we had a budget surplus in the last 100 years or so (but someone better check this), we had a bear market following it and at least a recession. A government surplus of course means that the government is soaking funds from the economy (taking in more than it is putting in). And suck soaking actions inevitably have resulted in economic slowdowns. Zeev