from: http://www.aci.net/kalliste/ Click Here: <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- The Looming Crisis Economic Catch-22 by Dr. Irwin Kellner NEW YORK (CBS.MW) -- Hear me now and believe me later. The more the stock market celebrates what it believes to be a slowing economy -- the less likely it is that the economy will, indeed slow. It�s not that Wall Street wants to see Main Street in the dumpster. Indeed, the last thing equity participants want to see is a recession because that takes a big chunk out of corporate profits, putting stock prices at risk. Rather, it�s slower growth that the Street is praying for. Reason: This might convince the Federal Reserve that its job is done, and that interest rates do not have to go up much more -- if at all. Rising interest rates always put a damper on stocks and this time is no exception. The Fed began hiking rates last June. As a consequence, the Nasdaq peaked in March, the Dow Jones Industrials back in January, while many stocks saw their highs last year. When rates go up, stocks lose their luster for a number of reasons. First of all, rising rates cut into earnings by increasing costs while reducin g sales. Higher interest rates also make margin buying more difficult, while increasing the attractiveness of bonds. Not surprisingly, the prospects that rates might stabilize for a while, instead of continuing to head higher, was cause for celebration, down on Wall Street. Convinced Fed is done hiking The Federal funds futures market is already convinced that the Fed will rest on its oars, come the end of this month. Two weeks ago, this market, where traders bet on future Fed policy, was bracing for another half-point hike. A spate of weak economic numbers, capped off by May�s labor force figures, gets the credit for this 180-degreee change in thinking. Rising stocks force Fed�s hand The problem is that by boosting stock prices in response, traders and investors are all but assuring that the Fed will continue raising rates. It doesn�t take a rocket scientist to figure out why. Fed Chairman Alan Greenspan and his colleagues have expressed concern that soaring stock prices, by making investors wealthier, have increased their propensity to spend. So if stock prices remain on their upward trajectory, it is not unreasonable to assume that, before too long, consumers will once again whip out their credit cards and shop till they drop. And if this, in turn, keeps the economic pot simmering, what do you think the Fed�s reaction will be? I would not bet the ranch that the Fed will just sit back and do nothing. A better bet would be another rate increase. ------------------------------------------------------------------------ Dr. Irwin Kellner, chief economist of CBS MarketWatch, is Weller professor of economics at Hofstra University. MarketWatch, June 7, 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 unwelcomed. Substance�not soap-boxing�please! These are sordid matters and 'conspiracy theory'�with its many half-truths, misdirections and outright frauds�is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply. Let us please be civil and as always, Caveat Lector. ======================================================================== Archives Available at: http://home.ease.lsoft.com/archives/CTRL.html <A HREF="http://home.ease.lsoft.com/archives/ctrl.html">Archives of [EMAIL PROTECTED]</A> http:[EMAIL PROTECTED]/ <A HREF="http:[EMAIL PROTECTED]/">ctrl</A> ======================================================================== To subscribe to Conspiracy Theory Research List[CTRL] send email: SUBSCRIBE CTRL [to:] [EMAIL PROTECTED] To UNsubscribe to Conspiracy Theory Research List[CTRL] send email: SIGNOFF CTRL [to:] [EMAIL PROTECTED] Om
