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Playing It Cool with the Overheating Crowd

Don't be so sure the economy is growing too fast.

Did the


act rashly last fall?

Looking back, it now appears that the Fed, the sage manager of our economy, managed to ease interest rates into the teeth of gale-force growth. Generally, Fed action has a delayed impact on the economy. And, generally, the Fed doesn't ease when the economy's racing. But this time, fearful of liquidity problems brought on by the

Long Term Capital

debacle, the Fed did ease rates when the signs of slowness did not abound. That move might explain why shoppers are out in force during cold January and people are all talking about taking big trips, buying houses and doing other things that normally don't accompany the postholiday shopping hangover.

When the Fed did move to aggressively ease rates, Wall Street greeted the news with relief. Last fall's soothing of frazzled nerves, however, is now creating a more uncertain future. If the Fed moved to ease too quickly, the economy may be on the verge of growing too fast for the Fed's comfort. If that's the case, then we could start to hear more chatter about the Fed slamming on the brakes in order to stave off inflationary pressures.

Other market developments are adding to this nascent thesis that the not-too-slow, not-too-fast economy is moving quickly to the too-darn-fast side of the road. For one, bond yields are heading north. On Friday, commodity-oriented stocks -- the oils and metals -- were zooming higher. This group loves the taste of inflation, a usual byproduct of the too-fast-growth world.

The broader market, however, is not excited about this fast-paced scenario. Indeed, for many, the emergence of a too-quick economy is a surprise. As recently as couple months ago, fear of recession in 1999 held currency with the chin-scratchers.

If the Fed has to slam on the breaks -- and that remains a big if -- then the first victim is going to be the big, heavy tech that is having a tough time right now. A move by the Fed to the tighter side of the tracks would mean a rethinking of capital spending plans, a rethinking of how many new computer systems to purchase.

Of course, this could be one more swing in what has become a constant in the market over the past few years. The punditry goes from fretting about the economy moving too quickly to worrying about it moving too slowly, and all the while the economy just keeps humming along at a steady pace without creating undue inflationary problems. Indeed, some believe that the economy can move as quickly as it has -- or even faster -- without any fear of inflation.

Investors should keep a close eye on a few things to see how this thesis plays out. For one, keep track of "old tech," the generals like


(MSFT) - Get Free Report



(INTC) - Get Free Report

. Should they start to turn higher or show signs of bottoming, as they did late on Friday, then the getting-too-fast thesis will diminish in importance. Also watch the inflation-sensitive commodity stocks. Oil may simply be heading higher because of

King Hussein's

health problems and the uncertainty his death may bring to the Middle East.

And, as always, keep a close eye on Asia, especially Japan. The growing-faster-than-expected thesis would get a big boost if Japan got back on track. Based on the


, it does not appear that a sharp rebound in Japan is imminent.

Outrage Department:

You wonder why the world is slow to get this Internet thing? Take a look at the recent coverage of the

Davos World Economic Forum

. Newspapers were filled with wonder about how the Internet was changing the world. But even as the forum's members debated the new medium's transformational possibilities, the event organizers denied independent Internet financial publications, like

, permission to attend. The Internet is a revolution, but don't let the revolutionaries get too close! Classic blind spot. It explains why the Internet is befuddling these elder thinkers...

Outrage Department II:

It's funny how the ethics hunters operate.

James J. Cramer

can whisper about some wacky company and it's national news. But what about the folks over at

Bear Stearns

? Check out this time line. Jan. 27, Richard Lindsey, director of


market regulation, leaves the commission to join Bear Stearns. On Feb. 4

The Wall Street Journal

reports that the SEC is weighing civil fraud charges against Bear Stearns. Well, they will be prepared for that one, I guess.

As for Cramer?



, the subject of his "controversy," continues to trade below its level the day he spoke out about potential overvaluation among some Internet stocks. Even

Jim Grant

has to admit that Cramer doesn't have that kind of power. Maybe the stock actually


a little ahead of itself when Cramer said what he said. Wouldn't that be something...