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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: yard_man who wrote (34696)	10/28/1998 11:47:00 AM
From: Ilaine	Read Replies (1) \| Respond to of 132070

Tip, I read the Cramer piece, and it puzzles me. I admit I really don't know much about bonds, but it seems to me that all Cramer is saying is that the people involved in the sale of bonds are not, at present, selling bonds because of low demand for bonds. He predicts that people in the bond industry will suffer financially. But he doesn't explain why those of us not in the bond industry should care. I would appreciate an explanation why I should care. I also don't care whether full-service stock brokers are hurting. By the way, have you tried the new Merrill Lynch site? askmerrill.com They are giving research away free through February, 1999, as a loss leader. Got to admit, it looks really impressive. I see why it costs more to use Merrill Lynch. I just don't see why it costs SO much more. CobaltBlue

To: yard_man who wrote (34696)	10/28/1998 12:21:00 PM
From: Knighty Tin	Respond to of 132070

Tip, He is right about the bond market. I first commented on this article a few days ago when I mentioned that Jimbo sounded like he was long and wrong on junk bonds. The stock market may be dear to Greenspan's heart. But the bond market is his arena of operation. If there is ever a choice about killing bonds or killing the stock market, the stocks be doomed. Bonds are the financing tool for the Federal govt. and their rates have a lot to do with whether the administration and the Congress can take credit for a surplus or shift blame for a deficit. It also impacts govt. spending, which is a primary stimulus to the economy. Of course, muni bonds do the same for states and cities while corporate bonds are what corporations sell to buy back stock at top dollar. <G> The point is, all of these factors, the most important in the economy, rely on the bond markets working smoothly and efficiently. They still work that way for the top credits, but they have hit the skids for less than prime time players. Today's rally in junks notwithstanding. Greenspan obviously feels he has to protect that market by lowering rates. But lower rates alone do not make junk credits that much more likely to repay their debts. Increased money for credit, which the enabler has also provided, has allowed banks to loan the junk credits cash to pay interest on their previous loans. That means the banks can therefore call what would normally be non-performing assets, profitable investments. Some of this is too Orwellian to be believed. And that is the crux of the problem. As long as everyone believes and claps their hands, Tinkerbell may indeed recover. But these moves are bandaids in a system that has a major league disease. They attack the symptoms without going after the causes of the problems. To give him some credit, AG may actually be exacting some promises of sane behavior for this current bailout. He wouldn't tell us about that. Let's hope he is. But, as I've said before, printing each of us a billion dollars would solve a lot of these problems as long as nobody suspected that the currency had been cheapened. That extreme example would definitely cause a decline in the dollar and huge inflation. There is certainly a limit to how much credit and money Greenspan can print to keep things business as usual without stagflation setting in. I think he has already overstepped that limit. Others think differently. But I would note that the immediate rally in bond prices after the discount rate cut has now totally disappeared. We are looking at bonds setting lower highs and lower lows in their ranges. And the junk market is still in trouble, big time. How does this impact stocks? Directly and indirectly. Directly, the cos. use cheap bonds to conduct their operations, capital spending and bottom line massages (all stock buybacks, option scams, etc.) Indirectly, at some rate, bonds attract stock holders. True, most buy at the bottom in rates, as they did recently. But, as rates go up, somebody says "why should I buy Internet Scammeister stock at infinity times eps when the same co's bonds are yielding 12%, or 15% or 20%? Sometimes this starts with convertibles, as the stock buyer is not totally convinced that he shouldn't have an equity position. Net, net, lower rates and scads of credit help stock prices until they turn on them. It is sort of like bacteria in the body. Some of it is useful, but you still want to take baths and brush your teeth if you don't want to get sick. AG has kept the market away from the tub and the Crest too long. <G> MB