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If you believe in miracles ... Date: 18/12/2000

The aircraft's landing. Tighten your seat belt, advises Brian Hale.

It will take more than Alan Greenspan can deliver tomorrow for Wall Street sharemarkets to get even a belated one-week Christmas rally.

Few experts doubt that the US Federal Reserve chairman and his central bank's interest rate setting committee will not shift to an easier "bias" at their meeting tomorrow preparatory to a rate cut in the new year - some think in January; others say March.

It is, as they say, already priced into the market. If the Fed doesn't change its bias, there could be problems. And, odd as it might seem, there could be even bigger problems if the Fed actually took a double step tomorrow, changing the bias and cutting the Fed funds rate without further delay.

Any joy that a 25 basis point rate cut would bring most likely would be swamped by the fear that such a step would engender; the fear that things are much worse than anyone realises.

That's already been the muted reaction to Mr Greenspan's recent attempt to pour oil on the markets' much troubled waters. Everyone was chuffed to learn that things weren't yet quite as bad as they were in 1998 when, as the Fed chief later revealed, the possibility of a systemic failure loomed large for the US (and thus world) financial system. But up to the point when Mr Greenspan spoke two weeks ago, hardly anyone had even thought things were as bad as two years ago - or that they could get as bad.

People started looking at the sky once he reassured everyone that the sky wasn't falling because his comforting words raised the possibility that it could.

Fixed-interest types, who've been coping with a junk bond market that's become junk itself as well as a pressured investment grade corporate debt market, were left concluding that Mr Greenspan is worried about the possibility of a credit crunch.

Equity types began fretting about a deterioration in credit quality and, after earnings warnings from a clutch of major US banks, quickly concluded it was already here.

Then there are all the other problems derived from slowing world economic growth and a US economy slowing much quicker than anyone thought possible. In a matter of just weeks, talk has turned from widespread agreement about the US economy's coming "soft landing" to discussing the possibility of a "rough landing" or a "hard landing" or even a recession.

The equity market is in shock. Serial earnings' killer announcements are arriving daily and not just from the "old economy" but the much vaunted "new economy" where everything was supposed to be different.

Not only are the banks, car makers and media companies stumbling (News Corp dipped to a new 52-week low in New York on Friday) but so are the chip makers and their suppliers, the PC makers, software companies, disk drive and peripheral manufacturers etc etc as well as the telecom companies and the "concept" telecoms that were all the rage earlier this year when tech/media/telecom was the only place to be.

Internet companies on the whole can be forgotten. Most of those still left are racing each other to become penny stocks en route to being delisted. Ironically, many of the dot commers who looked down their noses at America Online in January when it decided to merge with "old media" giant Time Warner now are terrified that the new giant will kill off what's left of their businesses.

It's not taken much to show that the "new economy" is far more interlinked than the "old economy". Collateral damage from the slowdown in PC sales and burst Internet bubble has produced a multiplying domino effect throughout the whole sector.

Tech has become a black hole sucking everything out of its orbit. One by one the major planets have gone down from Intel to Dell, Compaq, Lucent, Hewlett-Packard, IBM et al. Friday was Microsoft's turn after an earnings warning late the previous day.

Not surprisingly, all the indices tanked because Microsoft is a component of all of them but its falling share price was only partly responsible for the 240 point (2.2 per cent) fall in the Dow Jones Industrial Average, the 75.24 points (2.8 per cent) drop in the Nasdaq Composite index and the 2.1 per cent tumble in the S&P 500 index to a new low for the year. After all, the fade in Microsoft's earnings was hardly a great surprise.

Triple-witching also played a part with the expiry of share and index options and futures increasing volume (to a record 1.56 billion shares on the NYSE).

The really amazing thing is that the bulls haven't been silenced. The brief upward draft in prices ahead of the latest falls sent the tally of bearish advisers to a 16-month low because no-one wants to "miss the bottom".

http://www.smh.com.au/news/0012/18/text/business8.html

-- Martin Thompson (mthom1927@aol.com), December 19, 2000