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An astute observation! So the next question, what would it take for the
markets to continue declining in spite of lower short term rates and
increased liquidity from the Fed?
Earl
----- Original Message -----
From: "Gwenael Gautier" <ggautier@xxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Thursday, February 03, 2000 1:36 AM
Subject: [RT] Bill Gross on Tbonds
> The second force, Gross says, is the fact that Fed Chairman Alan
> Greenspan, by cutting interest rates aggressively after the stock
> market crash of 1987, and in response to the market turmoil of the
fall
> of 1998, "has demonstrated to investors that he will, when required,
> lower interest rates and provide emerging liquidity to support the
> stock market." This amounts to a free put option for stock investors,
> Gross says. Accordingly, stock prices will be higher than they should
> be at any given point in time, the economy will be stronger than it
> should be and the short-term interest rates controlled by the Fed will
> be higher than they would otherwise be. As long as the Treasury is
> buying back long-dated paper, only a stock market crash that prompts
> the Fed to cut short-term interest rates has the power to un-invert
the
> yield curve, Gross says.
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