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To: Sergio R. Mejia who wrote (21741)	10/15/1998 5:35:00 PM
From: CIMA	Respond to of 116779

In a surprise and unexpected move, the Federal Reserve Board took the extraordinary measure of cutting interest rates in between one of it's eight regularly scheduled policy-setting meetings. In making the cut, the Fed cited "growing caution by lenders and unsettled conditions in financial markets". Feedback from analysts immediately following the announcement was this should be taken as a clear sign of growing concern about the economy. The Fed cut its overnight rate by .25%, which had already been cut only three weeks ago by the same amount. In addition, the Fed also cut its discount rate by .25%, which it had not done in its last round of rate cuts. Other statements made by the Fed included "cautious lending and market turmoil are likely to be restraining aggregate demand in the future". They also added "Against this backdrop, further easing of the stance of monetary policy was judged to be warranted to sustain economic growth in the context of contained inflation." OUR COMMENTS Clearly, an unexpected and surprising move. The immediate reaction of the markets was to move sharply upward in a matter of minutes. However, it is quite clear the Fed is moving in reaction to the negative news facing world markets. Specifically, as late as August, the Fed was worried about inflation and had no intention of lowering interest rates. In a matter of three weeks, the Fed has now reduced interest rates twice. This is a clear indication to us that global economic conditions are worse than first expected and the Fed was caught off guard by the rapid deterioration. In this environment, we may take a look at short term trades but long positions can not be risked until such time as we are given a clear picture with respect to global economic conditions. This may be the bear market trap we have been warning against for the last 6 weeks. We will keep you updated. Regards, Agora The Investor's Investor. 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