Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: MrGreenJeans who wrote (5399)	5/27/1999 1:19:00 AM
From: marc ultra	Read Replies (2) \| Respond to of 15132

MrGreeenJeans re<<<<<< o what is the possibility Greenspan raises rates to dampen equity speculation? To prevent a stock market bubble?? To slow down the wealth effect??? That in my mind is the wild card tonight.etc. >>>> Excellent post. The reason I think the chances are strong for a rate rise is that I think the Fed is looking at things from a different perspective than most here. Rather than thinking just in terms of preventing a bubble they may be thinking in terms of having CREATED a bubble by the extreme steps they took last year to prevent a meltdown and this huge liquidity they flushed into the system causing extreme overvaluation on their stock market models and an economy that has not slowed to the 2% or so level they were expecting with continued extreme tightness in the labor market etc. Thus I think they may feel it may be their duty to correct some of the excesses they have wrought since waiting any longer may cause them to have to push the economy into recession to slow it down. I also think the ECI may start rising as we have HMO's losing popularity and health care costs may be on the rise. Finally the great "surpluses" as far as the eye could see which helped keep bond rates down is evaporating in the short term due to Kosovo which will continue to be a big expense if we are successful in moving the Kosovars back to some extent which will require a major NATO or international force for a long time. One question I have that maybe you or someone else can answer is what year was it that the Fed brought the Fed funds rates down to 3% due to the S&L crisis? If it was a bit prior to 1994 it would be good example of the Fed bringing rates artificially down due to a crisis only to have to raise rates vigorously when the crisis eased. I don't recall the years so this may be irrelevant Marc

To: MrGreenJeans who wrote (5399)	5/27/1999 6:20:00 AM
From: Justa Werkenstiff	Read Replies (4) \| Respond to of 15132

MGJ: Re: "After the first increase the spin was that the job was done and there would be no more increases in the foreseeable future. Greenspan proceeded to raise the rates more than once that year and one of the greatest crashes of all time occurred in the bond market far surpassing the 1987 stock market crash." 1994 was the year of the preemptive strike. The economy was cooking at an unsustainable rate of growth according to the Fed. model and the fear of inflation caused the Fed. to act. BUT things have changed since then. The Fed. 1994 model did not consider PRODUCTIVITY gains. This lesson was learned only in hindsight and the conclusion was that the economy can grow faster without any inflation because of the productivity gains being registered. So, the question is, what is the Fed. policy toward inflation: (1) preemptive or (2) wait to see it in the numbers? I think it leans toward the latter policy but we are on new ground. I think any thinking about the market takes on secondary importance in the grand scheme of things in the sense only that the wealth effect has causes more consumer spending.

To: MrGreenJeans who wrote (5399)	5/27/1999 8:36:00 AM
From: Ian@SI	Read Replies (2) \| Respond to of 15132

MrGJ, IMO, the possibility is absolutely zero. None of those purposes fall within the lawful mandate of the Fed. And I strongly doubt that the current governors will deliberately perform some unlawful act. What's their motive? spite that someone else is getting rich while they're restricted to treasury bills? Not likely. So what is the possibility Greenspan raises rates to dampen equity speculation? To prevent a stock market bubble?? To slow down the wealth effect??? That in my mind is the wild card tonight. Finally, the fed has announced a bias to tightening about 17 times. (the last time was the first time that it was made public on the day of the changed bias.) Only one of those occasions led to a rate increase. Source is the talking heads on CNBC. I haven't personally verified the statistic, so I doubt that it is absolutely accurate, but it's probably close. This may further imply, that the possibility of a rate increase is higher when there isn't a bias toward tightening than when there is. JMHO, Ian.

To: MrGreenJeans who wrote (5399)	5/28/1999 12:29:00 AM
From: Carl R.	Read Replies (1) \| Respond to of 15132

I quite agree. If the market corrects itself we may not see a rate increase, but if it doesn't I think we will. A.G. doesn't want this market to superheat itself past the point of no return. I think to AG that is as big a risk to the economy as inflation because a crash would have very real consequences to spending and to the economy as a whole. It would be much better to have a 10-20% correction here than another 20% run up and then a 40% drop. Carl