Bringing Out the Fed

The TaskMaster looks into the stock-market effect of some FOMC scenarios. Also, Tyco provides plenty of talk but little action.
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Will They? Won't They? Could They? Should They?





would be proud of the great debate surrounding the

Federal Reserve Open Market Committee


tomorrow. There's a compelling case to be made both for the Fed to leave interest rates unchanged and to tighten by 25 basis points, as reflected by the near-deadlocked (vs. dreadlocked) status of official polls.

I won't deign to parse the data, but recent reports indicate the U.S. economy continues to grow while inflation remains subdued -- the best of both worlds, in other words. Still, I believe the Fed will raise rates, if for no other reason than to "even the score" from last fall as Y2K approaches. Despite all the official declarations about preparedness, nobody knows how the rollover to the new millennium will play out (BTW, all my "high-tech" friends say they'll be someplace warm with cash on hand come Jan. 1, 2000). The Fed, I gather, would like to have the leeway to ease rates if the computer bug needs to be sprayed with some well-timed liquidity.

John Lonski, senior economist at

Moody's Investors Service

, also believes central bankers will tighten tomorrow, arguing "if they do not, the Fed risks sparking a bout of speculative excess in the financial markets with a drop of bond yields that might reaccelerate U.S. economic activity."

Which brings us to the subject at hand: the stock market.

More interesting than the back-and-forth about the FOMC meeting is the consensus view that


the Fed decides will be good for stocks. The exceptions being a rate hike plus the maintenance of a tightening bias, and/or a 50 basis-point hike or another "shocking" development. That was the overriding sentiment expressed by market players

today, although it didn't result in any substantive buying.

My very unscientific read of these things is that whenever everybody says X, look for Y to make itself known -- an overly algebraic way of saying there seems to be too much optimism about the Fed meeting for that optimism to prove valid.

I'm not saying the markets are about to tank or anything, but another classic sign of a market topping out is when those who had been bearish capitulate and try to ride the bull.

Bill Meehan, chief market analyst at

Cantor Fitzgerald

, fell into that category when he relinquished nearly a year's worth of

defensive posturing on Oct. 28 (a day after hinting as much in

this column).

Today, he described the

employment cost index



reports of that late October Thursday as "inflection points" which augured new highs for major averages.

"I was surprised the


was able to accomplish the feat so quickly, but it's just a matter of time for the




to make new highs," Meehan said.

For the record, Meehan thinks the Fed will tighten tomorrow, if only because of strength in the most recent

employment report

and rate hikes by other major central banks around the world (save Japan).


Alan Greenspan

has made it clear "the Fed should be pre-emptive when possible, and if it's not possible now, it's never" going to be, the strategist said (and it's hard to argue with that kind of thinking).

For those who'd rather see the bulls stay bullish and the bears stay bearish, take heart: Although on the bandwagon short term -- saying investors should "party like it's 1999" -- Meehan remains true to recent form when looking out just a bit further.

"The higher they push 'em, the harder they'll fall," he said of market averages. "I expect that may come in March and probably be a function of the Fed tightening again. There is no new economy. I don't believe that stuff, and I don't believe valuation measures have become meaningless."

A Line in the Sand or a Kick in the Face?

Tyco International


rose 1/4 to 43 1/4 today, an unremarkable performance on a generally unremarkable day.

But the action (or lack thereof) in Tyco shares is noteworthy. Following the company's announcement of a new options program for executives and meeting with analysts on Friday, a posse of sell-side analysts came out with positive comments today.

Among the highlights:

Goldman Sachs

reiterated the stock's recommendation-list placement and its price target of 63;

Salomon Smith Barney

reiterated its buy rating and target of 65;

J.P. Morgan

reiterated its buy rating and target of 68;

Bear Stearns

upped its earning estimate and reiterated its buy rating and target of 65;

Deutsche Banc Alex. Brown

reiterated its strong buy rating and target of 81; and, in a piece entitled "In Case You Missed It, Fundamentals Are Great,"

Merrill Lynch

reiterated its buy rating and 12-month target of 75. Salomon Smith Barney, J.P. Morgan and Merrill Lynch have investment banking relationships with the company.

To varying degrees, the analysts all said Tyco's management was "upbeat," earnings growth should continue to outpace peers and the market average, and "the recent controversy is fading into the background," as J.P. Morgan's Don MacDougall wrote.

Indeed, Tyco's shares have risen since closing as low as 35 9/16 on Nov. 1 in the aftermath of a report questioning the company's accounting practices in

mid-October. But the upshot of all that Wall Street firepower was a quarter-point move today.

Speaking of duds, the performance leads me to wonder whether investors really care about Tyco's "great" fundamentals or the fact that the stock, like

Austin Powers


The Spy Who Shagged Me

, seems to have lost its mojo.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at