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

To: John Hunt who wrote (15686)	5/11/1998 9:24:00 AM
From: Zeev Hed	Read Replies (1) \| Respond to of 18056

John, the only problem with these scenarios (interest hikes) is that these do not take into account the liquidity situation. How will the long bond rise when the supply of treasuries is going to decline? The FED may raise the discount, but that means that the differential between the discount rate and the short term rates is going to narrow to an unsustainable level. Since I cannot see a major rise in interest rates (beyond a spike to about 6.375 on the 30 year), I cannot turn particularly bearish at this time. If 8250 yield (and we are a very long way from there), than I may reconsider. It seems as if the FED's hands are tied, at least a little here. In order to soak excess liquidity, it is possible that fiscal steps will be taken (huge taxes on Tobacco? Taxes on imported oil to prop the domestic production? who knows). Zeev