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To: blake_paterson who wrote (23661)	10/31/1998 4:38:00 PM
From: joe	Read Replies (1) \| Respond to of 45548

BP, >>I believe that his rate cuts have created a bubble that can be sustained only by further cuts, given that 1999 earnings are now in the process of being managed down to realistic levels, creating high PE's. If he doesn't cut, then God help this rally... Just MHO,<< This is what I hope all investors are thinking since this will mean a lot of money is still on the sidelines and the market can crawl that "wall of worry". I'm strongly opposed to the above analysis. Here, I'll pick apart the arguement, but there's much more, so you can keep asking questions, or counter argue. Please do, since this is how I check my own reasoning:-) >>But the econ data released this week gives me serious pause. Indeed, if data released in the next two weeks is consistent w/ this past weeks data (GDP, G7, producer prices, etc..),<< Sure GDP turned out hot yesterday. This is actually good because profit predictions are pretty dismal, and therefore it shows that there is a chance for companies to make profits. IMO, this explained some of the DOW rise yesterday. But, the rest of the data have strongly indicated a SLOW DOWN in the economy. 1) Capital spending way down; partly because the credit markets are locked up. 2) Consumer spending is down a lot, and there is the worry that there will not be a good Christmas season. Note, how the consumer confidence indicator went down sharply this week. 3) Low producer prices ENCOURAGE easing by the FED. 4) G7 agreement to try to coordinate a plan against world economic crisis is good news. World catastrophe is the last thing the market needs. 5) High P/E's: Did anybody ever think that possibly those P/Es are high because profits are terrible? Backwards looking approach. If profits start to get back anywheres near the '96 or '97 levels, the market would be extremely undervalued. >>then I'll play the worry wort and say that he is going to have to see an ENORMOUS liquidity / credit problem to justify another rate cut in the presence of a strong economy. And to that point I ask: Is it still there?<< Yes, the liquidity problem in the credit market was ENORMOUS. It's now getting better, but not nearly enough for the Fed to change it's mind about not easing. We ALL KNOW HOW MUCH Uncle Al HATES to LOWER RATES, so if he did, you can just imagine the severity of the problem. Also, I think it wasn't till slightly later that the economic numbers showed the sharp slowdown the FED has been looking for. The tight credit problems (in the high yield sector) are very dangerous and I believe have been strongly linked to a slow down in capital spending. Another point: when the rest of the world starts lowering its rates, as has already started, then the US $ will climb back up, which will be anti-inflationary (which is not even a concern still), and will allow Uncle Al to lower more. But he will do so, no matter what the rest of the world does, but, IMO, Germany will be strongly pressured to ease rates also, since they don't like low US $ (though they are anti-inflation worse than Greenspan). JMO, joe regards, joe