Fed ineffectual so far...

Jordan Hayes jmhayes at j-o-r-d-a-n.com
Wed Mar 22 10:20:33 PST 2000


Doug writes:


>> Another negative: free cash flow for nonfinancial corporations
>> (profits plus depreciation allowances less capital expenditures) has
>> been pretty strongly negative for the last 2 years. This has been a
>> pretty decent long-term leading indicator for the stock market,
>> though of course Jordan says everything is still ok.

Carl asks:


> Does he? Haven't seen his take on the market here in a while.

My long term view is that it's got a lot further to go up, absent my two leading indicators: stock supply (which as Doug pointed out earlier is still shrinking, a bullish sign) and tax policy (they raised the limits on 401ks again this year, another bullish sign).

In the medium term, I think that some fundamentals in the market are changing and the Fed might be running out of tricks. There was a while there when Greenspan really was King Of The World and could make the markets mind. But I think a lot has happened to the microstructure of the markets (for instance, extreme widespread use of derivatives which can keep you wondering if it's "bad" when particular things go down -- now it depends on whether it was _expected_ to go down and whether the smart money was hedged against it; also the dryup of supply of "benchmark" bonds) that doesn't get under the Fed's microscope. So they are working with less data than they are used to, which ought to be bearish on their ability to Steer A Clear Course.

/jordan



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