Doug to FT: Eye popping

Christian Gregory christian11 at
Sat May 5 12:34:29 PDT 2001

> Bloody good question, but not one the equity markets appear to be asking
> yet - they're all busy positioning themselves for the May 15 rate cut - as
> if (should it come) it'll be an unambiguous and costless little freebie
> (and as if it'll necessarily fix spiralling unemployment, rather than just
> encourage more debt-financed buying of currency-slashed foreign goodies).

I thought you had it right about the dead cat bounce the other day, Rob. Markets were down on bad tech news. But the unemployment #'s seem to have made equity markets giddy, yesterday. Two days does not make a trend, but I wonder if the market's worrying about "fundamentals"--profits and unemployment--during the slowdown and equity doldrums phase (5% growth to 1% in the last quarter of 2000) hasn't ended. Now, we've got the "slow growth" they want (2% GDP growth in the first quarter, preliminary, as Doug said the other day), which slightly higher unemployment, combined with an interest rate cut, will only help. Are we in for a double bubble?

> BriefingsCom has it that Warren Buffett is buying things called zero
> coupons, which apparently constitutes a bet on a series of rate cuts and
> poor market returns.

That would tend to suggest not. Since there are no coupon payments for zeros, cash flow is totally determined by interest rates. Issuers are probably counting on the tax credit on implicit interest payments to help balance sheets and cash flow. And hoping for a good bit of inflation until maturity, I'm guessing.

> Anyway, clearly, Uncle Sam has most firmly decided they needn't give a
> about what others might think of them (they might be following the advice
> I'm told Saatchi'n'Saatchi gave the French government when it contemplated
> fixing France's image abroad after the Rainbow Warrior killing and the
> Muroroa Atol business: 'Let's not waste money on a campaign without hope,
> and just start from the premise everybody hates you anyway').

Washington as "Sensation," segmented cows suspended in fluids. It's beginning to make sense now.


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