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To: Ron Wilkinson who wrote (16917)	8/29/1998 5:26:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116823

U.S. rate cut still a distant prospect 07:27 a.m. Aug 29, 1998 Eastern By Caren Bohan WASHINGTON (Reuters) - The Federal Reserve may look seriously at easing interest rates to quell the financial firestorm raging through world markets but any cuts are unlikely in the immediate future, analysts say. ''If the Fed were to lower rates now, it would be an admission that they see a threat,'' said Pierre Ellis, senior economist at Primark Decision Economics in New York. ''This is a time when the best thing for the central bank to do is to exude confidence.'' With Russia on the verge of economic collapse and Asia's economic contagion spreading rapidly to emerging economies around the globe, speculation has arisen that the Fed may try to stem the carnage by reducing U.S. interest rates. Proponents argue such a move could throw a lifeline to Latin American countries such as Brazil, which are viewed as the next potential victims of the crisis. Those countries have been threatened by capital flight as worried investors rush toward the safe haven of dollar-based fixed income securities. A cut in U.S. interest rates would reduce the return on those dollar-based assets and presumably make them less attractive to investors. Rate cuts could also shore up the major equity markets, including the U.S. market, which have been hammered by a darkening outlook for global corporate profits. But analysts said fear of adding too much kick to a domestic U.S. economy that at least right now appears strong, would be enough to persuade the Fed to stay on hold for a while. A desire to avoid any kind of drastic action that could send a signal of panic to investors would also bolster the case for leaving rates unchanged. Although many saw a near-term rate cut as unlikely, Primark's Ellis and other economists said they would not rule out an emergency move by the Fed to inject liquidity into the financial system should the turmoil reach the proportions of the 1987 stock market crash. In any case, experts said a rate rise was probably out of the question for a while even though just over a month ago Fed Chairman Alan Greenspan, in his major, twice-yearly appearance before Congress, warned that tighter credit might be needed to ward off inflation. Greenspan said in the congressional appearance that inflation was a greater threat to the United States than a potential downturn, and he pointed to the very tight job market as a source of his concern. Roger Kubarych of the New York consulting firm Kaufman and Kubarych Advisers said worries about inflation stemming from the tight labor market were based on rigid ''textbook'' theories about the economy that ignored the reality of falling global prices. ''All of the risk of inflation has been superseded by the collapse in commodity prices,'' Kubarych said, referring to sharp declines in prices of oil and other commodities amid plummeting demand from crisis-torn regions such as Asia. The tenor of the debate about U.S. interest rates has shifted markedly in the wake of a sell-off in world financial markets that took the Dow Jones industrial average down by more than 4 percent on Thursday. Selling continued on Friday. A Friday editorial by the New York Times echoed the growing calls by some private economists for the Fed to look at the possibility of reducing interest rates. The editorial said such a move may be necessary for ''preventing a worldwide downturn.'' Amid the carnage in the markets, Greenspan and many of his fellow policymakers were attending an elite academic symposium sponsored every year by the Kansas City Fed Bank in Jackson Hole, Wyoming. As usual, they kept their thinking on interest rates mostly to themselves. But in an interview with Reuters at the Wyoming symposium, William Poole, president of the Federal Reserve Bank of St. Louis urged a ''wait and see'' approach by the Fed as he played down fears of an economic overheating. Such comments were viewed in financial markets as a significant signal of a shift in views because Poole, who has a reputation for staunch anti-inflation views, just three months ago cast a dissenting vote for higher interest rates against a majority of Fed policymakers who wanted to keep rates steady. Copyright 1998 Reuters Limited

To: Ron Wilkinson who wrote (16917)	8/29/1998 5:29:00 PM
From: goldsnow	Respond to of 116823

Stock market bulls retreating; bears grinning 07:26 a.m. Aug 29, 1998 Eastern By Pierre Belec NEW YORK (Reuters) - It looked like the end of the world as Russia's economic problems set off a global panic in stock markets. The experts say the latest jolt of crisis may have given investors another reason not to trust this market. Indeed, the market was not a crowd-pleaser this past week. The Dow Jones industrial average suffered its third-biggest one-day mangling in history on Thursday -- a slide of 357 points -- and the Japanese market skidded to the lowest level in 12 years. The Russian rouble crumbled and the Canadian dollar slumped to a 140-year low against the U.S. dollar. And, emerging markets from Eastern Europe to Latin America submerged. Some analysts say things could get worse before they improve because this week's events may shake U.S. investors out of their state of bear-market denial. Russia set the stage for the horror show. The former Communist giant, which had been fighting a losing battle against currency speculators, threw its hands up and surrendered by defaulting on its debt. Investors in Russia, who were handed some 20 cents on the dollar, screamed that they wanted their money back. The noise was heard around the world. Analysts said the global shock has raised the level of risk for investors, who now realize that with every new trouble spot sentiment has gotten worse. Indeed, the economies of Japan, Russia and Asia are stuck in a circle of pessimism that could push the rest of the world to the edge of an economic precipice. ''We are seeing a sea change in investors' opinion of the market,'' said John Geraghty at North American Equity Services, a consulting firm. ''The U.S. market can probably still find a lot of buyers after this shakeout but the amount of investment money coming from the faucets that have buoyed stocks for years -- foreign and domestic cash -- may be turned off,'' he said. The $64,000 question: Will the correction turn into a nasty bear market? Hugh Johnson, chief investment officer at First Albany Corp., is betting Wall Street is witnessing a simple correction rather than a nasty bear market. The conditions are not in place for an extended market decline, he said. ''But there is a pretty good argument on both sides because the outlook for corporate earnings is getting gloomier by the day,'' Johnson said. ''That is very bearish.'' Wall Streeters measure a correction as a drop of some 10 percent, while a bear market represents a fall of 20 percent or more, lasting for weeks or months. So far, the Dow has fallen 12 percent from its July 17 high of 9,337.97. The market had been riding high for three years on the double-digit gains in corporate profits but even this source of strength is petering out as U.S. multinational companies are having a tough time selling their goods overseas. Johnson said the markets have become a global affair and Wall Street will have problems standing up to the increasingly widespread economic crisis around the world. ''If it was just one event in Asia, Wall Street could manage, but when the problems start to spread beyond Asia to South America, Canada, Russia and Europe ... an economic expansion can turn into a slowdown or worse,'' he said. Bill Meehan, chief market analyst at Cantor Fitzgerald, said investors should not be fooled by the market's miraculous ability to make U-turns, rebounding quickly after a fierce sell-off. Some 50 big-name companies have created a decoy game that has masked the bear market, he said. ''People seem to believe there is an extraordinary safety in large cap companies, which have relatively high earnings predictability,'' Meehan said. ''But history has shown that it is not a profitable investment strategy to pay 50 times future earnings for a company that is growing at 20 percent,'' he said. The experts said the market may still need another good jolt of crisis to force investors out of their denial phase. ''It's a confidence game and the question is at what level of pain or type of event might shake investors' confidence and could snowball on itself,'' said Meehan. He said that plenty of things such as Asia, Japan and Russia as well as U.S. corporate earnings have not been fixed and can still go wrong. Meehan said he will not have a positive view of the stock market until the Dow drops to 7,300 points, a level that might discount all of the bad news. ''Right now, stock prices are misvalued for what we are likely to see in the months ahead,'' he said. For the week, the Dow Jones industrial average was down 481.97 points at 8,051.68. The Nasdaq composite index fell 157.93 at 1,639.68 and the Standard & Poor's 500 index was off 53.95 points at 1,027.25. Copyright 1998 Reuters Limited.