Thank You Mr Greenspan, Maybe.

by Jim Stevens ([email protected])

Burlington, VT. (Oct. 19, 1998) -- As we learned in the waning hours of Thursday's market action, the Fed lowered interest rates -- again, another quarter point, yee-ha. Those of us sitting on the big dogs of the growth stock equity market felt like we were in a steady hot air balloon, judiciously rising with the short fuel bursts of earnings generally meeting the estimate "number." Suddenly, while our backs are turned, the balloon rockets skyward and we turn around to find Mr. Greenspan has thrown all the ballast into the sea!

If the Fed has a genuinely clearer picture of the future, which has changed so dramatically in the three weeks since their last rate cut that the Fed HAD to take action between meetings of the Federal Open Market Committee, then I guess the situation is grave. The faltering world economy needs a bigger boost, and quickly, because it's headed even further into a slump than was thought three weeks ago. So what's the reaction among US equity investors? "Let's party." A two-day 5% rise in the Standard & Poor's 500!

Why did the Fed raise rates now, and is this a good thing? Again, this is the beauty of a long time horizon in investing. It really doesn't matter all that much. Alan Greenspan might be right, and the global economy may be beginning to drag the US economy into a funk that shrinks corporate profits and hurts shareholders. In that case, the lower interest rates will be a signal from the most influential economy on earth that "we're here to help," and the details of fixing the problems and getting the economies of Asia, Latin America, etc., will be accelerated.

After a period of low or negative market returns -- the best time to buy stocks -- the historical pattern of stocks beating all other investment classes would more than likely resume. Unless some unforeseen drastic change occurs, the Workshop screens would likely also return to their market-beating performance and quickly eclipse any underperformance experienced during a downturn.

On the other hand, this may well be the bottom for US stocks right here -- nobody really knows. If this is the case, the global problems get worked out at light speed and the interest rate cut serves to bolster a quick turnaround in the US markets. More days like last Thursday and the Dow marches on to 10,000 by the millennium, just like all the pundits had been forecasting for the last 3 years... up until three months ago.

Either way, the advantage of investing in a well-selected portfolio of ten to twenty US stocks doesn't seem to have changed much. I guess I just like to be there those days when for no predictable reason, trillions of dollars are made!

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