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Dollars and Sense

Just how might a Fed hike affect the dollar? Not in the way you might think. Plus, it's report card time at the Task house.
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Dollar Bill, Y'all

SAN FRANCISCO -- After feasting on a generous helping of crow since my "scary" call on's

TV show last weekend, I'll be choking on the stuff if the


doesn't raise rates tomorrow. Still, I'm comforted somewhat by the knowledge I wouldn't be dining alone at that particular buffet of infamy.

Yet, as I (and others) reported

last week, a small cadre of market watchers believe the Fed stands pat tomorrow. If that sentiment really has fueled this latest rally, it could get "scary" tomorrow when the Fed tightens.

I say "when" because -- to co-opt a trader's favorite quip -- I may be early, I may be wrong, but I'm never in doubt. Moreover, the Fed will tighten because

Alan Greenspan

said labor costs and productivity matter most and the

employment costs index

rose 1.1% in the second quarter while productivity growth declined to 1.3% from 3.6% in the first quarter.

There's also the argument the Fed needs to save face with the market, especially with the Dow rallying to an all-time high

today. Unless, of course, you can argue there's


exuberance going on.

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Also, many folks feel the Fed will be hog-tied in the fourth quarter by both the election season and Y2K concerns. Moreover, if it raises rates now, the central bank will have that much more wiggle room to provide liquidity if the turn of the millennium


cause "disruptions."

Then there's the dollar. Although Greenspan has made public comments about the currency markets being out of his jurisdiction, some market watchers believe the Fed will tighten because of the dollar's recent fall vs. the yen. The continuation of such trends is potentially inflationary here and deflationary there (Japan, that is), which is the last thing Greenspan wants. (OK, maybe being thrown into a Turkish prison with

Barney Frank

is the


thing he wants, but you get the idea.)

On the Other Hand

"I think the dollar is just a red herring," countered Thomas McManus, equity portfolio strategist at

Banc of America Securities

. "I don't expect to see the dollar strengthen on Fed tightening. It will strengthen when the market anticipates the Fed is done tightening and might actually start to ease. I would like those people who believe currency rates are set by interest rates to go back to 1994 and explain why the dollar was so weak when interest rates were going up."

The Fed was tightening aggressively that year while the greenback was plummeting, McManus recalled. Why? "Because people holding dollars realized a short-term rise in interest rates would be followed by a deceleration of



The same forces have been at work this summer, he said. "Clearly, the Japanese economy is perceived to be recovering. At same time, signals in the U.S. are pointing toward further Fed tightening, which ultimately leads to a deceleration of the U.S. economy."

But McManus wondered if the market has reached an "inflection point" -- as it did in early 1995 when a Fed hike resulted in a smaller increase in long-term market rates than the preceding hike as market players believed the Fed had gotten ahead of inflation's curve.

"I'm counting on that inflection point to be reached soon, if indeed we haven't reached that point already," he said, suggesting such an occurrence would be "very bullish" for stocks and bonds.

By association, the dollar would strengthen as well. In late trading today, the dollar was quoted up .23 to 111.64 yen.

TSC Special

For sticking a well-manicured finger in the eye of conventional wisdom, senior writer Suzanne Kapner gets the nod today for

Overnight Overkill: FedEx's Net Prospects Remain Uncertain.

The Report Card

In keeping with's

mantra of accountability, I figured it was due time to go back and check how recommendations made in this column have fared. Special thanks to


editorial assistant

Eric Gillin

for his editorial assistance in this undertaking, which will span several days.


July 15, Lou Mazzucchelli, a PC analyst at

Gerard Klauer Mattison

reiterated his long-term bullishness on



but recommended investors "stay away" from the stock until after MacWorld, which ended July 23.


Alan Sherman

would say, that was "good advice": The stock was pretty much stagnant from July 15, when it closed at 53 1/4, until July 26, when it closed at 50 15/16. Since then, Apple has been on another tear, closing up 2.5% to 60 3/4 today.

The same day, Steve Harmon, then senior investment analyst at

and now running his own cyber-shop,

, correctly predicted


would trade above $100 on the day of its IPO. However, Harmon's call would be "the hottest IPO of the year" seems overstated, at best, in the wake of

Red Hat



Since trading as high as 105 on its opening day, has retreated steadily, closing today at 33 3/4 after a 9.1% gain. After its Aug. 11 IPO, Red Hat has closed as high as 85 1/4 and finished today down 6% at 63 7/8. Moreover, Red Hat's opening day volume of 17.9 million shares outpaced's 16 million.

Then again, people in glass IPO houses shouldn't throw stones; is still up 20.5% from its initial offering price of $28.


July 16 John Roque, senior analyst at

Arnhold and S. Bleichroeder




, saying a close above 76 would "imply a target of 92."

Gannett has closed as high as 76 15/16 since Roque's pick, but his "stop" recommendation at 69 is looking more prescient. The newspaper giant closed up 1.2% today to 69 3/4.


July 19, Roque explained the infatuation with the rotting-pulp press. Today, he said, "in short, I am wrong," when asked about Gannett.

In that July 19 follow-up, Roque -- who has since joined


vast and expanding network of outside contributors -- listed several other favorites.

Since July 19,



has risen 7.4%;



by 14%;



has risen 18.2%,

Human Genome Sciences


has jumped 34.2%; and



is higher by 17.7%.

"Those guys are still bullish and I'll go with them all," Roque said.


Boston Scientific


has lost 21.8% since July 19 and



is down 13.2%.

Boston Scientific "missed cause it missed numbers," Roque said, suggesting technicians aren't totally blind to fundamentals. He offered no explanation for Immucor's decline.