-Caveat Lector- <A HREF="http://www.ctrl.org/"> </A> -Cui Bono?- from: http://www.aci.net/kalliste/ Click Here: <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- Achieving Nirvana Stocks: No Pain, No Gain Greenspan is a Trojan Horse, here to crash the market and elect George W. Bush. When market psychology shifts from greed to fear, rising interest rates usually have something to do with it. The fact that monetary policy across the world is tightening might thus be expected to create problems for the longest postwar bull market in equities. But this is a market that has long defied expectations. Since the short, sharp slide at the start of January, global equities have been volatile but not downwardly mobile overall. And when the Bank of England's monetary policy committee chose to raise short-term interest rates by a quarter point to 5.75 per cent this week, the move caused scarcely a ripple. This was despite short-term rates now being nearly a full percentage point higher than long gilt yields. In the US, meantime, last year's successive rate increases failed to prevent the market breaking into record territory. Indeed, the instinctive response of equities to tighter policy was to rise, not fall. Rising yields on long bonds were equally ineffective in restraining the bull. The obvious question is whether a traditional relationship between interest rates and equity prices has broken down. The difficulty here is that the question presupposes a homogeneous market. In both the UK and the US, the equity market has been narrowly driven over the past 18 months by the higher-tech sectors. Many investors with portfolios weighted towards more traditional areas of the market have entirely missed out on the bullish uplift. Moreover, the relationship between monetary policy and equities does not work with mechanistic precision. And for monetary policy to have a differential impact on the new and old parts of the markets is far from irrational. Most internet stocks have been financed by equity rather than debt. The biggest high-tech stock of them all, Microsoft, has net cash in its balance sheet. Such stocks are thus immune from any rise in borrowing costs. Rate rise impact That said, even a cash-rich internet company cannot escape the impact of rising interest rates since future cash flows have to be discounted at a higher rate. But when euphoria pervades the market, such logic is unpersuasive for investors. In theory, a rise in rates reduces the relative attractions of equity against short term IOUs. In practice, no increase in interest rates provides an attractive alternative to any dot.com stock for a true believer. For those who are looking for capital gains measured in hundreds or thousands of per cent, a quarter percentage point increase in rates, which is what people expect from the Federal Reserve next month, is trivial. A measure of the euphoria can be seen in the market response to America Online's offer for Time Warner. In effect, this deal brought the old and new economies together. AOL was prepared to make its paper bid for the media and entertainment group at a premium of more than 70 per cent. New economy effect Fair enough, you might think, given that Time Warner contributes disproportionately to the earnings and cash flow of the combined entity. Yet AOL's stock sank on market concern at the dilution of AOL's exposure to the new economy. Perhaps some shareholders also saw parallels with the attempt a decade ago to put US film studios together with the high-tech electronics of Sony and Matsushita Electric. The marriage of Japanese hardware and Hollywood content proved exceptionally unhappy. A further reason for the market's apparently weak response to monetary policy could relate to the behaviour of the Fed itself. Some investors appear to believe that Fed chairman Alan Greenspan will always be in a position to bail out the market if it collapses. Academic literature is now emerging to explain the fall in the risk premium - the extra reward over the risk-free government bond return that investors demand from equities - in terms of this alleged safety net. What, then, will ultimately bring the bull market to a halt? The key lies in a speech by Mr Greenspan on Thursday which made specific references to unsustainable imbalances in the US economy. "In the end," he said, "balance is achieved through higher borrowing rates". In other words, there is a point at which monetary policy does finally squeeze indebted companies; and this invariably affects conditions more generally. Whether that leads to a hard landing for the US economy is another question. While growth is still outpacing even the most optimistic estimates of its sustainable rate, inflation remains astonishingly docile, as yesterday's consumer price figures demonstrated once again. The bulls are betting on a slow squeeze producing a soft landing. The bears point to the perennial tendency of markets to overshoot. Take your choice. The Financial Times, Jan. 15, 2000 Philosophy Sartre Lives Bernard-Henri Levy speaks. AFTER decades in the lumber room of intellectual history, Jean-Paul Sartre, patron saint of a generation of nihilists in black polo necks, is back. The world he stalked is departed. It is still possible to feel an existential numbness at the Caf� de Flore when presented with the bill. But the St Germain of little bookshops and caf�s crammed with earnest young intellos has disappeared under a tidal wave of designer boutiques. The shade of Sartre, though, has proved more durable. Twenty years after his death, his tarnished reputation has been buffed up in a weighty book, uncompromisingly entitled The Century of Sartre, by Bernard-Henri L�vy, a leader of the movement that dethroned the gurus of Left-wing thought in the Seventies. L�vy's study is one of a number of works most of which give a cautiously positive reappraisal of a man whom British audiences, if they remember him at all, recall as an aesthetically challenged poseur who had an unaccountable success with women. To the French of the post-war years, though, Sartre was a gigantic figure. According to L�vy, "it is through him that it is possible to understand something of the enormous adventure of the 20th century". Captured by the Germans while on military service in 1940, Sartre stayed in Paris after his release, later articulating in novels and philosophical works the uneasy compromises of a generation that found it difficult to believe in anything. He exemplified the caf� savant, holding court before an admiring audience of young men and women with his intermittent lover, Simone de Beauvoir, at his si de. Much of what Sartre said was obscure, possibly even to himself. But there was enough in the message to inspire a cult of introspection and negativism that defined cool in the Fifties. Sidelined in the early Sixties, he returned to fashion by backing the incoherent protest movement of 1968 as an "engaged intellectual". Sartre marched with the students as they ripped up paving stones to hurl at the riot police, and harangued bemused workers in the car factories of north Paris. Even at the time, his actions and slogans - such as "all anti-Communists are dogs" - seemed undignified, if not absurd. L�vy concedes as much in his assessment of Sartre as "an intellectual who so often and so grandiosely got it wrong". But a squadron of admirers is now emerging who discern magnificence in his wrong-headedness. The writer and war veteran Jean Daniel spoke this week of his "torrential talent, his bubbling dialectic, his display of devastating conclusions fed by a hatred of the white and the colonialist". The philosopher Luc Ferry wrote in Le Point that, behind the colossal misjudgments, "Sartre was a philosopher of the first order". If Sartre had believed in an after-life he might now be taking pleasure in his rehabilitation. Or he might remain in death, as so often in life, indifferent to it all, puffing on his pipe, staring into space, "overwhelmed by the futility of existence". The London Telegraph, Jan. 15, 2000 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, All My Relations. Omnia Bona Bonis, Adieu, Adios, Aloha. Amen. Roads End <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are not allowed. Substance�not soap-boxing! 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