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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Stitch who wrote (6743)	9/26/1998 10:42:00 AM
From: Zeev Hed	Read Replies (2) \| Respond to of 9980

Stitch, you outlined all the reasons why I think that the FED's will not relax this week. Banks are probably working overtime reviewing their lending portofolios and right now are not in the process of identifying new customers to lend out to, but debtors to take off their books. Actual interest rates are lower then the FED rates and lowering by the FED's, per se, would not change that picture. If they did lower the rate (yielding to the political pressures), the market will have a mild rally on Tuesday and Wednesday (Wed is Yom Kippur, counter trends often prevail). By Thursday, I think that the wobble will already start and by the first full week of October, we may have the beginning of the minimelt in progress. If they do not lower the rates, we may start going down slightly earlier, IMHO. Zeev

To: Stitch who wrote (6743)	9/26/1998 10:47:00 AM
From: Sam	Respond to of 9980

Stitch, Zev, <<Essentially all pundits (24 out of 25 according to NBR) expect a reduction in the FED rates this Tuesday. I wonder if they will be proven wrong.>> <<And if so what then the market?>> The stock market gets trashed if that unanimous an opinion--not to mention the bond market's obvious opinion judging from its recent downward trend--is proven wrong. Though the bond market may go even lower than it already is, since by holding rates firm, the Fed effectively tightens--real rates are very high by historical standards, especially if you believe, as AG and others have said in the past, that the CPI overstates inflation by some amount (1-2% ar the usual numbers that get bandied about). But I think it is fairly accurate to say that the Fed has pretty much followed (rather than led) the market during much of the Greenspan tenure. He--or "they," the Fed--would, I think, be foolish not to follow it now. Even if they reduced rates by 1/2%, it would still leave plenty of room for further easing if it proved necessary, assuming that inflation stays tame, as seems a reasonable forecast at this point even if the dollar weakens somewhat. Worldwide capacity remains high for many of the "goods" that most of us buy. And the worldwide currency devaluations in many of the producing countries as well as their need for stable cash (i.e., US$) means that they will be selling those goods at cut rate prices. There really is a psychological aspect to pricing power, Milton Friedman's dictum that it is always a monetary phenomenon alone notwithstanding. And the psychology today is to hold the line as much as possible.