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To: Defrocked who wrote (7454)	11/8/1997 7:06:00 PM
From: Zeev Hed	Read Replies (4) \| Respond to of 18056

Defrocked: I for one do not see any rise in the discount rate next week. It should have been a decline actually, but I think AG is keeping his powder dry in case a financial accident occurs. Raising the rate here would invite such an accident. I am of the opinion that currently we have both fiscal and monetary restraint. On the fiscal side we are running what is essentially a balanced budget now. On the monetary side our interest rates ar about 100 to 150 bp above what they should be considering inflationary expectations. Continuing with both fiscal and monetary tightening will soak too much money from the economy and get us into an unecessary recession. I do not think AG goals is to solve the bubble problem with a recession, he is the master of the "soft landing" art, and he will do what is necessary to keep the soft landing scenario intact. That requires keeping the market down here or somewhat lower and letting earning and growth catch up with the elevated valuations. I know, the money supply is growing too fast, but I think a big chunk of this money is ending up in matresses in the developing world and as cash in underground economies. Zeev

To: Defrocked who wrote (7454)	11/9/1997 7:31:00 AM
From: bearshark	Respond to of 18056

Defrocked: I read the minutes of the FOMC for the last two years on Friday to gauge the thinking of this committee. As of their last published minutes, they were clearly leaning towards tightening. The last such tightening was in March 1997 when they reset their targets for fed funds from 5 1/4% to 5 1/2%.. As of the last meeting minutes, they kept the target at 5 1/2% but had a bias towards a higher target. I would not be surprised if they let the fed funds target drift up to 5 3/4% from 5 1/2% after next week's meeting. That would be consistent with their thinking and would be quieter than a discount rate rise. However, the discount rate is now set at 5% and the fed funds rate would be at 5 3/4%. So the next move after next week's move, if they see increased wages being passed into prices, would be the discount rate increase. That could be to 5 1/2% in the discount rate. As noted on this thread, there is a complication now--what to do with Japan. I have no question that Japan was on some important minds in Washington this weekend. They will be watching the numbers tonight, as we will, and sweating 15,000 on the Nikkei. The IMF cannot help Japan. The world economy cannot lose Japan. The U. S. government and its institutions will support Japan, quietly. I beleive the U. S. Fed explained this type of effort in a Jaunuary 1997 Greenspan speech. One thing we can watch is the dollar's value to the yen. It moved up and touched 124 last week. What amount of growth would the U. S. sacrifice to help Japan?